Oireachtas Joint and Select Committees
Thursday, 30 July 2015
Committee of Inquiry into the Banking Crisis
Nexus Phase
Ciarán Lynch (Cork South Central, Labour)
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As we have a quorum, the Committee of Inquiry into the Banking Crisis is now in public session and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off. We begin our first session today which is a public hearing and the discussion with Mr. Fintan Drury, former non-executive director of Anglo Irish Bank. In doing so, I would like to welcome everyone to the public hearings of the Joint Committee of Inquiry into the Banking Crisis. Today, the focus of the inquiry is on Anglo Irish Bank and IBRC. At this morning's session ... or this afternoon's session we will hear from Mr. Fintan Drury. Mr. Drury is a former non-executive director of Anglo Irish Bank. He was a member of the bank's risk and compliance committee, which he chaired for one year. He was also on the committee established on recruit the new CEO in 2004. Mr. Drury, welcome before the committee this afternoon.
Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect to their evidence to this committee. If you're directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to do so, you will be entitled thereafter only to a qualified privilege in respect of your evidence and you are directed that only evidence connected with the subject matter of these proceedings is to be given and I would say that ... within the terms of reference of this inquiry. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of this inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. And members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.
The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied on in questioning and form part of the evidence of the inquiry. So with that said, if I can now ask the clerk to administer the affirmation to Mr. Drury please.
Ciarán Lynch (Cork South Central, Labour)
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Once again, thanks, Mr. Drury, for being here this afternoon with the committee and if I can invite you to make your opening remarks please.
Mr. Fintan Drury:
Thank you, Chairman. Thank you, members of the committee. In July 2009 I was on the panel on the Marian Finucane Sunday morning show reviewing the papers and the events of the week. During a commercial break, Rachel English, who was sitting in for Marian, said that a couple of callers had phoned to ask that she would question me about my role on the board of Anglo Irish Bank. I dealt with this as best I could at the time by saying that, as a former director, I would fulfil my obligations to the letter and co-operate with any legal matters that might arise. I also said that morning that I believed I had a duty as a citizen of this State to participate fully in any and all inquiries established either by Government or by the Oireachtas. I was obliged, as a citizen, to give whatever insights I might have into the events around the banking collapse. Since then, I, like other former directors of Anglo, have attended interviews with the Office of Director of Corporate Enforcement and the GBFI investigating certain matters and I accounted in full for what I knew. I have been interviewed by Dr. Nyberg as part of his report, all of which was conducted in private. I am grateful, therefore, to have the opportunity to appear before this committee and, in full public view, deal with those issues that I can deal with. Where I cannot, I will say so. In my written statement of a month ago to this inquiry, I prefaced the response to the points raised by the committee by making some general observations.
The first is that the part of the definition of "non-executive directorship" is to be non-executive and that in accepting such a role in any business, there is what I have chosen to describe as "an unstated contract of trust" between you, the non-executive, and the executives or senior management in that business. The non-executive holds a part-time role on the board and he or she is dependent on the integrity and the openness of the senior full-time management who have access to all the information about the organisation's business. In 2009 Donal O'Connor, the then chairman of Anglo Irish Bank, addressed the board's failings and made a fulsome apology to all those who had been affected by its underperformance, from shareholders to staff. And as a result of the ... a result of what had happened - the ultimate fallout - an apology to the taxpayers. I was party to that apology, as a former director, albeit I had retired in June 2008. I want to recapture the essence of that apology this morning ... or this afternoon and restate it for my own part because with more ... the more that has emerged in the intervening period, I would want there to be no obfuscation when it comes to apologising for whatever part I may have played in the difficulties that arose. Quantifying that is for others, including this committee, to do.
This is all by way of context for these proceedings, Chairman. I will endeavour to deal with all the committee's lines of inquiry. I will do so as clearly and directly as I can, with my only interest being to add to the weight of knowledge that might assist you in your work to ensure that the lessons are learned and can be applied to future shock scenarios - better to protect the financial system, better to protect the economy and better to protect the people of this country. I believe there are valuable lessons to be learned from what we have experienced. That experience cannot be of value though, if those involved are not prepared to come forward and give an honest account of what they know and to do so without concern for protecting any individual's interests, including their own. Over a six-week period in the summer of 2002, I joined the board of Anglo Irish Bank and Paddy Power plc. I served for six years on the bank's board and eight on the board of Paddy Power, six of those years as chairman. At the time I fulfilled those roles, I had an equally high regard for the senior management of both companies. Interestingly, so too did the markets and, in the case of the bank, international rating agencies. I did my job with each company, with the same commitment, interest and the same integrity. In taking on the roles, I did so in the belief that I was working with management teams that would share all the information required with me, as a non-executive director, to allow me to fulfil my responsibility to the shareholders. Was that in any contract of employment? No. Did it need to be? No. This is business at a level where not everything should need to be documented, where management ... senior management knows that it has an obligation to keep its non-executive directors appraised of anything that is material to the well-being of the business.
There's been a good deal of comment on the lending approach of Anglo Irish Bank. Much of it is comment that could be applied to the many banks across the world that had or have a focus on one main sector, such as property.
Broader-based banks also got the emphasis wrong and continue to get the emphasis wrong. Considerable focus is placed on risk and the management of the risk function within the bank and its oversight by the board and, specifically, by the risk and compliance committee.
As you said in your opening remarks, Chairman, I was a member of this committee for the duration of my time on the board, and its chairman for my last year as a non-executive. It's understandable, correct, that attention has been focused on this aspect of the bank's governance and it's reasonable to expect that the committee of inquiry would want to question me about it. Let me set some initial thoughts before you do. I believed that the risk and compliance function was well-resourced and that the senior executives responsible within the bank were competent, committed and focused exclusively on protecting the bank's interests against any lending that could damage it. I also believed that the overall structures, built around the executive function, were robust, comprising a risk statement which was reviewed and updated every year and, as part of that review, a comprehensive listing of all anticipated risks detailed and considered by the committee and the board. That was, in effect, our bible for the coming year and a programme to mitigate those risks was reported on at each risk meeting. Risk management as a function within the bank lived this on a 24-7 basis. It was monitored by internal audit and external audit and quarterly reports were submitted to the regulatory authorities. The risk and compliance committee reviewed the work of the asset and liability committee, which was a management committee, and we reported directly to the board. Separately, we brought in external consultants to review the risk committee's work and the risk function on a regular basis. In 2003, Bernard Somers and Associates was brought in to review the whole risk function within the function, post the Rusnak affair. In 2006, that exercise was repeated when PwC were brought in to review the performance of risk within the bank and the minutes will show that I had recommended, as I finished with the bank and the committee, that a further external report should be carried out in late 2008 to see how the committee could be strengthened further.
There are issues that have been raised by other contributors to the inquiry to date around the bank's credit policy, its loan growth and the concentration on development lending, which I am sure you'll want to explore presently. Before doing so, the Anglo collapse needs to be seen in context. Yes, the bank over-extended itself and, despite efforts from 2006 onwards to curb lending in Ireland, it took on too much in the Irish marketplace - even with the application of the foot to the brake - in new development lending that the board had approved at that time. Great efforts had been made over the previous decade to develop its franchise in the UK and North America with considerable success, the latter being down, in no small measure, to the work of David Drumm, a serious consideration when it came to his appointment as chief executive. Nonetheless, the bank's exposure to development lending was at 23% by the end of 2008, with 50% of total lending in Ireland. On the other hand, the board had supported the recommendation of the director of banking to stop new lending except to its top, most established clients and Anglo's share of major land deals in Ireland was less than half that of AIB and 10% lower than Bank of Scotland between 2005 and 2007.
My friendship with Brian Cowen has been much commented upon in the context of Anglo's demise. Let me deal with what I know. In doing so, I realise there's a significant number of people whose minds are made up on the issue and nothing anyone can say will undermine their belief in a conspiracy theory. Interaction No. 1 was a few days after St. Patrick's Day 2008. I received a phone call from Seán FitzPatrick, the chairman of the bank, asking me if he thought that Brian Cowen would take a call from him. I asked him why and he said it was about the ongoing liquidity issue, so I said that I knew Brian Cowen was overseas, but I would try and reach him. I made contact with Mr. Cowen within an hour or an hour and a half, explained the situation to him, and he said he would need to talk in the first instance with the Governor of the Central Bank, but that he would then revert to me. Within an hour or so later, he had called me back and he told me that the Governor was going to deal with the matter.
Interaction 2 - Heritage House, Stephen's Green, April 2008. The first point to make here is that this was not a special, set-piece event built around Brian Cowen or his position as Minister for Finance. Such events happened, on average, twice a year and had been in place since before I had joined the board in 2002. Over those years, the board had held lunches primarily, though sometimes dinners, with people in public life - senior public servants, politicians and others - with the emphasis very firmly on it being a social occasion where there would be an exchange of views and experiences. In my time on the board, I had attended, I would say, eight or ten and ... of those functions and among the attendees over those years had been politicians of different persuasion to what Brian Cowen's is. Brian Cowen just happened to be next on the list. I had undertaken to ask him to do the event and, indeed, the records in the Department should show that he had at least ... on at least two previous occasions been diaried to meet with us, but other priorities had got in his way.
The event was completely unremarkable. I recollect a general introduction by Sean FitzPatrick, as chairman, and then a broad discussion about all things other than banking, with the Minister going around the table asking each board member to set out their thoughts on their area of expertise or their view of the Irish economy or, in the case of those who had global experience, like Noël Harwerth, who was a former COO of Citigroup, the global economy; the same with Gary McGann, obviously through his role as CEO of Smurfit Kappa.
Interaction 3 - the Druids Glen golf outing. I understand that some people find it hard to believe that we didn't discuss the bank during the course of that afternoon and evening. I'm a sometime sceptic myself, so I understand the extent to which some people have difficulty in accepting this point. Let me, though, ask a few questions. Had we discussed the bank, what would we have discussed? The general liquidity issues in the sector at that time or how the Quinn CFD position had unsettled the market and added to the pressure on the stock? Perhaps we could have discussed those issues, but to what end? The then Taoiseach is a friend of mine. I saw him regularly, often in his offices, so why, if I, as a former director of Anglo at that time, wanted to lobby him or to bring undue and inappropriate influence to bear on him, would I choose such a convoluted and public route to do so, when I could have arranged to meet him in his office, closed the door, sat down and had the conversation well away from prying eyes? For me, the idea that the meeting, the golf and the dinner in Druids Glen was part of some conspiracy to capture the support of Brian Cowen for some kind of imagined need that Anglo had in July 2008 is more lacking in credibility. We met for about two hours, we went through an agenda that Alan Gray had prepared for the meeting and which did not have banking on it at all. Seán FitzPatrick, Brian Cowen and I then went and played ... I don't even remember was it nine or six holes of golf and then we went to the bar and had some drinks, where we were joined by Deputy Caoimhghín Ó Caoláin, who happened to be in the Druids Glen hotel attending a wedding, and he asked Mr. Cowen to join the bridal party for photographs, which the Taoiseach - the then Taoiseach - was happy to do. Later, Gary McGann and Alan Gray returned to join us for dinner. Alan had retained the agenda, but in classic Brian Cowen fashion, he remembered that his driver was outside and he said he would like him to join us for dinner, which, of course, he did.
We reviewed some of the matters we had discussed that morning and we closed business early. There are other material reasons why people should not believe the conspiracy narrative. Brian Cowen may represent something that some people do not like and do not admire. That is absolutely their prerogative, as all of us evaluate in our own minds, in our own hearts, people who are in public life. What should be acknowledged, however, as I know politicians who are not part of his party readily do, is that in public office, Brian Cowen would never make a decision that was not centred on what he considered to be best for his country.
Equally, this is about me and my standards. I would not act in a manner that is unethical. And were I to have attempted to pressurise Brian Cowen in the interest of a private business, at the expense of the State who's duty it was his to serve, I would have been behaving inappropriately, and for those who know me well, in a way that would be completely and utterly out of character. In my time as a director of Anglo Irish Bank and Paddy Power, and other private businesses of which I was a director, I never discussed the business of those organisations in any material way with Brian Cowen. Confidentiality is integral to who I am and how I conduct my affairs.
Much of the comment on Anglo is commentary that could be applied to the many banks across the world that had or have a narrow focus, rather than the larger institutions that offer a wide array of products and services. Much of the comment is also based on a view of the bank of its lending and of its growth, which has its source in the knowledge we now have of the cataclysmic global economic events of the mid-2000s. I know, Chairman, that you've all probably had your fill of witnesses coming into these sessions and talking of 20/20 vision or, "If I knew then what I know now." But while in normal circumstances, this may be a pretty poor line of defence, it is the case that the storm that broke in Ireland was a global financial tsunami that had its origins elsewhere and just took its time to crash over our small island and wreak the damage that it did. There is no doubt that the damage was accentuated by the fact that our own defences were very weak. We had gorged in the boom years and the banks had continued to feed our insatiable appetites. I know. I know because I was involved in both putting the menu on the table as a non-executive director of Anglo Irish Bank, and I know because I was one of the hundreds of thousands who sat there and ate more than I needed. This is not excuse time, Chairman; it is simply to acknowledge the fact that when the massive shock waves stirred by global financial events washed over us, we were already in a vulnerable position. We know now that Anglo Irish Bank most certainly was.
This statement is not an apologia. It is an honest attempt to summarise what I would consider to be the main insights of the time that could help the committee in meeting its objective to assess what went wrong, where and why in order that it can apportion responsibility where it believes it should rest, and provide guidelines or learning's from its review of the whole episode. I accept that to have been on the board of Anglo Irish Bank over the period leading up to the financial crisis, disallows absolutely any notion that one could claim to be in any way blameless. But, as I have said before, it is for the committee to determine where the lines of responsibility lie and to weight them according to people's roles across the banking sector and the other stakeholders involved. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Drury. And we can commence questioning and in doing so if I could invite Deputy Eoghan Murphy. Deputy, you have 25 minutes.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chairman. And thank you, Mr. Drury, you're very welcome.
Eoghan Murphy (Dublin South East, Fine Gael)
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In the written opening statement that you provided to the committee, under the line of inquiry for the committee, "Appropriateness of the relationships between Government, the Oireachtas, the banking sector and the property sector", you wrote, "This is not something I believe I am equipped to answer." Why did you write that?
Mr. Fintan Drury:
Because I felt that the issue is one which covers a very wide span. I was being asked by this committee, by the banking inquiry, to give my perspectives as a non-executive director of Anglo Irish Bank. I may have views on how our country is governed, how our economy is managed, how banks are regulated, how different institutions of the State interact with Government and interact with the Oireachtas, but those are views which I did not believe were particularly relevant to the specific role that I had as a director of ... a non-executive director of Anglo Irish Bank. And my sense is that if my involvement as a director of Anglo Irish Bank is what people want to inquire of me, then I'm happy to give whatever insights I can, but to-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay, well just on that then, in relation to your role as a non-executive director for Anglo Irish Bank from 2004-2008, in that role, did you establish contacts between the bank and the Government?
Mr. Fintan Drury:
No. I mean, one of the things that was interesting about Anglo Irish Bank as an organisation, and I had worked previously with the bank as a consultant in the '90s. Prior to selling my communications company in 1999, I had quite an extensive involvement with the bank, part of which was to try and work with the senior management to transition, if you like, the bank from its position ... or positioning in the marketplace at that time, to being recognised as being more established, more substantive. And one of the interesting things about that, Deputy, was that there was a very significant resistance at the top level of the bank then and that was still there when I became a member of the board in 2002, to engaging with politics, to engaging with Government, to engaging-----
Eoghan Murphy (Dublin South East, Fine Gael)
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But-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Are you saying that when you were a non-executive director of Anglo Irish Bank, you never made a contact with the Minister for Finance or the Taoiseach on behalf of the bank?
Eoghan Murphy (Dublin South East, Fine Gael)
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Well, I'm sorry, how do you explain then the phone call that you organised between-----
Eoghan Murphy (Dublin South East, Fine Gael)
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No, no. I'm asking why-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----in your written statement-----
Eoghan Murphy (Dublin South East, Fine Gael)
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If I could just-----
Eoghan Murphy (Dublin South East, Fine Gael)
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In your written statement, you said you believed you were not equipped to answer on the appropriateness of relationships between the Government and the banking sector. And when I asked you to elaborate on that, you said that you were here to account for your role as a non-executive director of Anglo, and that that didn't pertain to that line of inquiry. And then I asked you if, as a non-executive director, did you make contacts on behalf of the bank with the Government. To which you then, I think, said in a longer answer, that you did not - but in fact, you did.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes, but I want to clarify that because-----
Ciarán Lynch (Cork South Central, Labour)
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Allow Mr. Drury to respond.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes, okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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It's just that it wasn't acknowledged in the written statement that you supplied and I was wondering why. And you've tried to explain that. But can I just ask you then to clarify-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----the contacts that you laid out to us in your opening statement, are they the only contacts that you made on behalf of the bank, with a member of Government?
Eoghan Murphy (Dublin South East, Fine Gael)
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Do you recall a board meeting in early 2008, at which the possibility of the NTMA placing further deposits with the bank was discussed?
Eoghan Murphy (Dublin South East, Fine Gael)
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I'm talking about an article from theIrish Independentwhich discussed or which details a board meeting that was held in early 2008, at which the placing of deposits by the NTMA with the bank was discussed.
Ciarán Lynch (Cork South Central, Labour)
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Can I just ask Mr. Drury-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry, Mr. Drury, are you familiar with the article?
Ciarán Lynch (Cork South Central, Labour)
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Okay, once you remain within the lines of inquiry and under ... and remain under direction.
Eoghan Murphy (Dublin South East, Fine Gael)
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I don't know the source of that article.
Ciarán Lynch (Cork South Central, Labour)
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What article?
Eoghan Murphy (Dublin South East, Fine Gael)
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This is an article provided by the legal team this morning, Chair, its from the Irish Independent. It's entitled, "The political contacts that led to controversy."
Ciarán Lynch (Cork South Central, Labour)
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What's the date?
Eoghan Murphy (Dublin South East, Fine Gael)
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2014, I think.
Mr. Fintan Drury:
I never discussed, at any board meeting, making contact with either an individual, i.e. Brian Cowen as Minister for Finance, or the Department of Finance, in respect of any issue regarding Anglo Irish Bank. I never would have allowed any discussion arise at a board meeting of Anglo Irish Bank, or Paddy Power for that instance, where there could potentially have been a conflict between my role as a board member and my relationship with Brian Cowen.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Thank you.
Eoghan Murphy (Dublin South East, Fine Gael)
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We'll move on to the Heritage dinner, if we may.
Eoghan Murphy (Dublin South East, Fine Gael)
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Just to clarify some things around that. You arranged the dinner. Is that correct?
Eoghan Murphy (Dublin South East, Fine Gael)
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You-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Mr. Fintan Drury:
As I explained in my opening statement, Deputy, I ... it fell to me to see whether Brian Cowen would be prepared to attend what initially was going to be a lunch in the manner in which other public servant ... public servants and senior politician ... political figures had over the ten years or so, as I have explained in my statement. And, because I was known to be a friend of his, I approached him and asked him if he would do it. It was then the ... the organisation of the dinner would have been managed by other people within the bank.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Do you see a possible conflict of interest in using your friendship with the Taoiseach - or the then Minister for Finance - to set up these types of contacts, to set up these dinners?
Eoghan Murphy (Dublin South East, Fine Gael)
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Well, sorry, this dinner, in particular.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And you attended the dinner with Mr. Cowen. And how long did it last for, do you remember?
Eoghan Murphy (Dublin South East, Fine Gael)
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Ninety minutes, okay. And do you recall any formal presentations or document?
Eoghan Murphy (Dublin South East, Fine Gael)
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None. Do you recall if Mr. Cowen arrived with a document?
Eoghan Murphy (Dublin South East, Fine Gael)
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He didn't have-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And he didn't leave with any documents?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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And do you recall at the dinner any discussions around funding problems for Anglo?
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes. No discussions around the NTMA.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Moving on to the other occasion then, the Druids Glen outing.
Eoghan Murphy (Dublin South East, Fine Gael)
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That was ... was it lunch, golf and then dinner? Is that correct? How long was-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. So how long of a total engagement are we talking about in terms of the interaction between Mr. Cowen and the representatives from Anglo Irish Bank?
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Mr. Fintan Drury:
Seán FitzPatrick was chairman of Anglo Irish Bank. Fintan Drury was a former director of Anglo Irish Bank, not at that time, and Alan Gray was a director of the Central Bank. So ... and they were ... they were selected for that discussion on the basis that prior to going on holidays, I had had a discussion with Brian Cowen about the value of having a number of smart people around a table to discuss with him some of the more substantive economic issues that ... and not just economic issues, but primarily economic issues that were facing the country at the time and which he, as Taoiseach, might need to get some outside perspectives on.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Mr. Fintan Drury:
And Brian Cowen was pretty concerned that there would be any misunderstanding by anybody who would be approached and asked to be involved in such an exercise that he was in some way creating a kitchen cabinet. This was a ... this was a kind of one-off discussion to explore areas that outside people might be able to give him guidance on. And the reason the people who were at that event were chosen was because it was a combination of people I knew and people that ... who Brian knew. Brian had great belief in Alan Gray, as many people in politics and in the Civil Service do. So he wanted him there. I knew Alan, but not well. He wanted Gary McGann there because, as I refer to in my opening statement, he had a view that Gary was very smart, very committed to public service. He was a ... I think at the time, a former chairman, if not still chairman, of the Dublin Airport Authority, and had committed himself to a number of roles in public service, but he was also chief executive of one of Ireland's largest companies, which had a global reach and Seán FitzPatrick was my suggestion and the suggestion was made at a time when Seán FitzPatrick was deified. It's an exaggeration but his reputation was, both globally and in Ireland, extremely high and he was seen as somebody who was extremely bright, extremely talented, and would have, therefore, value to add. And it was done on that basis.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. At any point, was Anglo Irish bank discussed?
Eoghan Murphy (Dublin South East, Fine Gael)
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At any point was liquidity or solvency issues in the banking sector discussed?
Eoghan Murphy (Dublin South East, Fine Gael)
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But you were there to discuss the economy and what was happening globally-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----is that correct? And at no point the banking problems that had already begun in 2007 came up, Northern Rock, Bear Stearns.
Mr. Fintan Drury:
Yes, I mean, I'm not saying that, you know, there was no discussion about the fact that there was a very significant global ... the start of ... well, more than the start, the emerging economic difficulties which were partly being fuelled by significant financial difficulties. I'm not saying that that wasn't the backdrop, if you like, but what I'm saying to you is ... to be clear, Deputy, what I'm saying to you is that at no point was there any discussion whatsoever about Anglo Irish Bank. And the question I posed in my opening statement was to say, "Well, why would there have been?" Because at that time, Anglo Irish Bank was under pressure under two headings, as I saw it, as somebody who had retired from the board six weeks previously-----
Eoghan Murphy (Dublin South East, Fine Gael)
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So-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And any discussion of the NTMA?
Eoghan Murphy (Dublin South East, Fine Gael)
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And does the agenda for the meetings-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Does the agenda for the meeting still exist?
Eoghan Murphy (Dublin South East, Fine Gael)
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The agenda that you said, I think, Mr. Gray drew up.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes. And at no point ... just to be clear on what you understand, Mr. Drury, at no point did you leave any of the individuals alone for a long period of time or any period of time at all in which to have a side conversation?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Before and after-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----any moment where someone said, "I'd like to speak to you for a moment, have you got ten minutes?" and-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes.
Mr. Fintan Drury:
-----and in that respect it's a bit like the question you asked me about the NTMA at the dinner in Heritage House, and you asked me was the NTMA discussed at the dinner in Heritage House. No, it wasn't. Was ... was there a discussion between two parties ... or two people who were at that dinner about the NTMA? I can't answer that. It would be wrong of me to. I can say that Fintan Drury didn't have any discussions at that dinner about the NTMA and, equally, I can say with complete certainty, that at no time over the course of the Druids Glen affair did, did we have a discussion about Anglo Irish Bank. However, you know, did I go out to take a phone call, did I, did somebody leave the ... our company at one stage? Well, I know people did, clearly. So whether there was or not, I don't know. I very, very much doubt it.
Eoghan Murphy (Dublin South East, Fine Gael)
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But, just to be clear-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----the purpose of the ... the day itself-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----was not to allow those types of informal contacts to happen-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----unbeknownst to you.
Mr. Fintan Drury:
No. And what I've tried to ... and, I mean, I said in my opening statement I recognise, as a sometime sceptic, that, you know, people go "Well, look at everything that happened and look at the people who were there," and "How could they not have?" kind of thing.
But I would reiterate that if the purpose was to somehow bring an agenda in respect of this bank to the attention of the then Minister for Finance ... or, sorry, in July 2008, the Taoiseach, I had privileged access to Brian Cowen because of our friendship and if it was a case of me wanting to, on behalf of the bank, influence Brian Cowen, either during his time as Minister for Finance or his time as Taoiseach, to take a particular view on Anglo Irish Bank, I could have gone to see him, walked into his office ... I don't mean that ... I mean-----
Eoghan Murphy (Dublin South East, Fine Gael)
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I take that point.
Eoghan Murphy (Dublin South East, Fine Gael)
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I take that point. Do you have a special access pass to Government Buildings?
Eoghan Murphy (Dublin South East, Fine Gael)
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You didn't have? No.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Just then, one of the final areas I want to look at in this ... this area of questioning is the ... the phone call around St. Patrick's Day in 2008. Is it your understanding that Mr. Cowen did or did not speak to Mr. FitzPatrick following your intervention?
Eoghan Murphy (Dublin South East, Fine Gael)
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He did.
Mr. Fintan Drury:
And that was ... I don't know definitively but my ... my recollection is that he would have called him or ... and maybe he asked me to get Seán FitzPatrick to call him, I don't know. I think unlikely, but the purpose of the call was to say that he had spoken with the Governor of the Central Bank and the Governor of the Central Bank was dealing with the issue.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And did you speak to either of the participants in the phone call-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes, afterwards ... after they had had that chat. Did Seán FitzPatrick call you back to say "Thanks for arranging that. By the way he said X."
Mr. Fintan Drury:
Yes, he could ... I would have ... I would've been ... I would be surprised if he hadn't. It would have been somewhat discourteous if he hadn't. But it ... it probably was a call back. If there was a call back, I would say the call back was to say "Thank you for organising that. I spoke to him and we're going in to meet the Governor of the Central Bank." I don't recall, again, with certainty.
Eoghan Murphy (Dublin South East, Fine Gael)
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So the end result of the phone conversation between the two that you set up was a meeting with the Central Bank. As far as you're aware, that was ...
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And that meeting took place when? Sorry, just to remind me.
Eoghan Murphy (Dublin South East, Fine Gael)
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And just before I move on from this area of questioning, do you think that any of the contacts between yourself and Mr. Cowen - any of the contacts that you made or any of the contacts that you facilitated - resulted in any understanding at all in how the interests of the bank might be considered in a way that might have influenced Mr. Cowen's decision making in the run-up to the guarantee or in the guarantee itself?
Mr. Fintan Drury:
If you know Brian Cowen as well as I do ... Brian Cowen is someone who you can give a view to on anything and ... and your view may be passionately expressed. But if Brian Cowen doesn't think it's the right thing, you've wasted your time. And to ... because I think it's an important question in terms of not just his integrity but I'm here to speak for myself, my own integrity. To presume, and I'm not saying that your question does make that presumption, but to presume for a moment that Brian Cowen would have been influenced to such an extent by me or by anybody else in respect of one bank and one bank's interests, that he would take a decision, or allow himself to be influenced in making a decision, in a manner that was not in the interests of the people of Ireland and the State is ... I think for anyone who knows Brian Cowen and anyone of any political hue who knows him well would say "That's not Brian Cowen". Now, it is all-----
Ciarán Lynch (Cork South Central, Labour)
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Can I just stop you short a second and maybe, Mr. Drury, you might just give us an indication as to how many times you've met Mr. Cowen in the last 12 months.
Mr. Fintan Drury:
In the last 12 months? Very, very irregularly. Partly, and I regret that, but partly because the truth is that we live in a very small country. We live in an environment where if I met Brian Cowen for a pint or we went to a match together, there is a percentage of people who would think we're up to no good. And so it ... all of this palaver, to use an unfortunate term, has constrained the friendship in a way which is regrettable but it is what it is and I think it's to protect each other in a sense-----
Ciarán Lynch (Cork South Central, Labour)
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Sure.
Mr. Fintan Drury:
-----because, almost, you can't win. If you meet him less often now than you would've done previously, then you were only meeting him because he was the Minister or the Taoiseach. If you meet him less often now than ... or more ... sorry, as often now, then, you know, you're talking about the upcoming inquiry and you're cross-checking each other's notes on what happened. And there is an element, to be truthful, of "You just can't win".
Ciarán Lynch (Cork South Central, Labour)
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Okay. And just because-----
Ciarán Lynch (Cork South Central, Labour)
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-----Deputy Murphy was just moving on to wrap up with his questions but you have quite categorically stated there your position with Mr. Cowen and how he would not be influenced by any information that was put before him. But were there discussions with you and Mr. Cowen about a pending guarantee?
Ciarán Lynch (Cork South Central, Labour)
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Was there discussions?
Ciarán Lynch (Cork South Central, Labour)
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Okay, that's fine, I just wanted to get that clarified. Okay, thank you.
Ciarán Lynch (Cork South Central, Labour)
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Sure, indeed.
Mr. Fintan Drury:
And, you know, I have a significant interest in politics. I have a great interest in the values that this State should espouse and I would, under no circumstances, allow myself to be used in a manner whereby I would be trying to influence a Minister or the Taoiseach of the day to do something which would be inappropriate or ... feathering my nest or other people's nests, relative to his responsibilities.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Deputy you have about five minutes left there.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair.
Susan O'Keeffe (Labour)
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Could I also ask for a clarification?
Ciarán Lynch (Cork South Central, Labour)
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You can get it ... when you come around to your own questioning, you can get clar-----
Susan O'Keeffe (Labour)
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No, it's directly related to the question you asked Mr. Drury - how many times did he meet Mr. Cowen in the last year? We don't know. He didn't answer the question.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Well, I take in general that a ... casual-----
Susan O'Keeffe (Labour)
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You just said just not as often as before.
Ciarán Lynch (Cork South Central, Labour)
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Reset it back to four minutes.
Susan O'Keeffe (Labour)
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He asked you how many times and I was just asking how many.
Mr. Fintan Drury:
Well, I mean, I don't keep a tab, a running tab, on how many people ... you know, I've lots of friends and I don't keep a tab on how many times I've met them. I have had, you know, different things going on in my life in the last couple of years, Senator, which mean that some friends that up to two years ago I would've seen very regularly I have seen less frequently. So I ... the point I was trying to make was that, rightly or wrongly, we made a decision as friends that we should see less of each other for fear that being seen together would be misunderstood or misrepresented.
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay? Thank you, Chair.
Ciarán Lynch (Cork South Central, Labour)
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Clock is reset for you there, Deputy, just under five minutes now.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you. Thank you, Mr. Drury. Let's move on to your interaction with Dr. Nyberg for his report. Because in his report, in paragraph 2.9.6 he says, "The Risk function in Anglo was inadequately resourced and did not have the conviction necessary to ensure compliance with credit policy." But I think in your opening statement you said that the risk function was well resourced so-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes. Have you read the Nyberg Report and do you agree with that finding?
Eoghan Murphy (Dublin South East, Fine Gael)
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Believed.
Mr. Fintan Drury:
-----that the risk function in Anglo was well-resourced. I engaged fully with Dr. Nyberg. I found his approach very insightful, very fair and very comprehensive. And I'm not ... you know, I think one of the things I ... there's probably only one significant finding in Nyberg that I would really take issue with and ... and I think, as I said ... also said in my opening statement, Deputy, the truth is that whatever belief I had at the time that I was a director at Anglo Irish Bank, some of those beliefs have been if not shattered, they have been rendered inappropriate.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. This also from Nyberg then, "Most Anglo Board members did not appear to have sufficient experience or specialist knowledge to fully recognise the specific risks attaching to a fast-growing monoline bank". Do you accept that finding?
Eoghan Murphy (Dublin South East, Fine Gael)
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Fast-growing monoline bank.
Mr. Fintan Drury:
Yes, I think that is correct. I don't think there were directors available in Ireland who had experience of a fast-growing monoline bank and I'm not, I'm not trying to be smart. But I do think that the ... in other words what I'm saying is if you were to parse that sentence, I think that the idea of directors not having sufficient experience is not reasonable or correct but I think not, not having specific experience in order to be non-executive directors of a fast growing monoline bank, I mean, I think that's a statement of fact, truthfully.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay, well then ... moving into that in a bit more detail then; the monthly risk management reports ... at Anglo, noted on a continuous basis, the bank was in excess of the Financial Regulator's single sector exposure limit, which is 200% of own funds. By July 2008, just when you came off the board, the exposure was at just over 600% of its own funds. Were you ever concerned about this breach of the limit, over 200%, was it something that was raised with you, was it something that was discussed at the board?
Mr. Fintan Drury:
I mean, it would have been discussed at risk ... and the engagement would have been with the Financial Regulator. I had ... I unquestionably had faith in the risk management function and the risk management team. I think there were errors made ... and rather than appear to be apportioning blame elsewhere, I think as chairman of the risk committee for that last year, and as a member of the risk committee for the previous five years, that I have to accept some of that responsibility. And what I mean by that is, for example, I think that the decision we made to have a ... merge the roles of chief risk officer with that of the finance director was a mistake. And that's not a reflection, important to state, of the, on the individual in question, you know, quite the opposite. But it's in the principle, when you look back, and I'm going to try avoid saying that ... too much, but the principle, at the time the principle should have been wrong. We should have, as a board, we should have recognised that that principle was not good, because the bank was at a scale where those two functions needed to be completely delineated.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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One supplementary Deputy, and then I'm moving on.
Eoghan Murphy (Dublin South East, Fine Gael)
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No, I can come back on the...
Ciarán Lynch (Cork South Central, Labour)
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You can come back on that one, okay, thank you very much.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Pearse Doherty. Deputy you have 25 minutes.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat a Chathaoirligh agus fáilte, Mr. Drury. Can I begin maybe if we can get Vol. 1, page 15, of the books drawn up.
Pearse Doherty (Donegal South West, Sinn Fein)
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It'll be come up on your screen and I'll reference it anyway. It's the PAC report in July 2012 on the crisis into the domestic banking sector, and it noted, this is the quote, it says:
Anglo had poor governance structures and procedures and risk controls during its period of high growth. Weaknesses in these areas were identified by auditors and regulators in 2003, 2006 and 2008.
It goes on to say, "Management showed a lack of awareness of risk and focused their attention on business growth." Mr. Drury, how do you reconcile these comments with the positive statements on governance structure of the bank contained in the corporate governance statement each year, in the bank's annuals, annual report?
Mr. Fintan Drury:
Well, I think the first point to make is, that those statements, if you juxtapose or juxtaposition one against the other, they are irreconcilable. If you ... but that's the view of the PAC reviewing what it saw as being the performance and the stewardship within Anglo at a moment in time or over a period of time, rather. And you are juxtapositioning that against the corporate governance statements in the annual reports, and I'm saying to you ... what I'm saying to you is that, if you simply take one commentary and put it against the other and present them as you have done, they are irreconcilable .
Pearse Doherty (Donegal South West, Sinn Fein)
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Which one is accurate?
Pearse Doherty (Donegal South West, Sinn Fein)
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Which one is accurate? Did the regulator point out all of these deficiencies in 2003, 2006 and 2008?
Ciarán Lynch (Cork South Central, Labour)
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That's understandable Mr. Drury.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Were you satisfied as director of the bank, that as director of the bank you were provided with all the necessary information, and in particular, financial information necessary to fulfil your fiduciary responsibilities? Did you ever, ever have any concerns over the accuracy or timeliness of this information?
Mr. Fintan Drury:
I have a pretty strong view on this, Deputy ... but I have to be cautious on how I might express it. So, let me be, or attempt to be, cautious and yet at the same time address the question and deal with it as substantively as I can. I think I made a reference to, in my opening statement, I made reference to ... I talked about the, kind of, contract of trust. And I think it is something which, you know, at the risk of labouring it, people just need to understand and accept that if you are taking on a position as a non-executive director, you have no choice but to vest a degree of trust, and I'm not talking about legal issues, I'm talking about ethics, I'm talking about moral responsibility. There is a two-way moral responsibility. I cannot function as a non-executive director of any organisation unless I can presume on the executives providing me with the information I need in order to be able to evaluate what is happening in that organisation. Okay? I think, I hope that people would accept that. Because otherwise, you're second-guessing everything, and you become an executive, and you're in the, you're in the institution or organisation every day of the week. So my, my answer to you is that without being specific or without being ... addressing very particular areas which might by implication identify individuals unfairly, there was a deficit and it's manifest in some of the documentation I've received from the committee.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay ... if we can go, look at Vol. 1, page 51, this is Anglo's annual report for 2007 and it shows over the period 2002-2007, profit before tax increased by 376%, earnings per share by 363% and total assets by 398%. The graphs speak for themselves in terms of the rapid rise of Anglo in those three areas. Do you think that these levels of growth were prudent or sustainable, in the context of the level of competition in the Irish banking market during this period? And in your opinion, did these levels of growth imply that the pursuit of growth was affecting credit quality and lending standards?
Mr. Fintan Drury:
I think if you go back to when this annual report was published, it was well received. The view of Anglo Irish Bank, at that time, would have been still uniformly positive. The share price was coming under pressure for reasons we've discussed or have been discussed here already. I think that the growth story that Anglo was at that time, or had become, was one that was largely admired, was largely admired by all external audiences or most ... the vast majority of external audiences.
And so, at that particular time, I don't think that there was anybody that I can recall who was identifying and establishing in any definitive way or ... a problem with the growth story of Anglo Irish Bank. Now, that does not mean that the board of the bank at the time, including non-executive directors, wouldn't have had a responsibility to take a wider view and to look at the figures in the stark manner in which you have presented them, Deputy, and you're right, in which they look now when we look at them. We didn't, and that is again clear from the documentation you will have read, and all of you will have read and seen in preparing for these meetings that, you know, the view that was taken of the growth of the bank was that it could continue to grow. The problems that manifest themselves, both the global one, which I have stressed in my opening statement, but which I do not want to over-stress because I think it in ... if I was to do so, it would, kind of, try and negate what happened here - and I mean in Ireland and I mean not just in Ireland, within Anglo Irish Bank.
Pearse Doherty (Donegal South West, Sinn Fein)
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But the question isn't about ... we know that the bank grew-----
Pearse Doherty (Donegal South West, Sinn Fein)
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We know that the bank grew and we know that the bank stopped growing and rapidly went the other direction. The question is ... is in relation to the risk-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----is, were you blinded by the growth? And I mentioned, for example, the earnings per share increasing by 363% over that five-year period. Now, 90% of employees of Anglo Irish Bank were shareholders with the bank. Were individuals blinded by the rapid growth and the rapid growth in share prices and took additional risks as a result of that? Was it affecting credit quality? Was it affecting lending standards?
Mr. Fintan Drury:
Okay, the growth in share value - and I can only speak personally, clearly - the growth in share price ... value was not something that I ever believed in as being a make ... a means by which one should establish, or try and establish, the success or otherwise of any organisation, because I believe it is a particularly limited view to take of a business. So, for example, whether it was Paddy Power, Anglo Irish Bank or any other business that I was involved in, the growth - even a private business with shares that weren't traded on the Stock Exchange - the growth in the share value, for me, was not what the business and the people involved in the business should be focused on, or would be focused on. So, as a board in Anglo Irish Bank, I don't remember - and I'm sure there would have been discussions about share price from time to time - but I don't ever remember that being a focal point for the board in terms of determining whether or not the business was being ... was successful, and that the only means of judging the success of the business was where stood the share price.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, that's not the question, sorry, Mr. Drury. The question really is: did the growth, and the pursuit of growth, by Anglo Irish Bank affect credit quality and lending standards, in your opinion?
Pearse Doherty (Donegal South West, Sinn Fein)
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That's one part of it.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, you believe lending standards weren't reduced as a result of that. As an independent non-executive director, did you ever have concerns over the levels of exceptions to credit policies as detailed in the monthly risk management reports? And we can see from page 57 of the core documents there in relation to the level of exceptions which were happening in the period of 2008 which were averaging between 25% and 30%, but, in July 2008, had increased to 42%. Was this a concern of yours at this time as a member of the committee and former chairperson?
Mr. Fintan Drury:
Well, I had ... the figures you show ... first of all, the figures that are showed in this document are averaging about 27%, 26%, 28% and the big jump is in July 2008 to 42%. I have ... I had retired from the board at that stage, No. 1, and, No. 2, my last board meeting, as it happened, was April 2008.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes okay, and during that time, in April 2008, it was 28%; the previous month it was 28%; the previous month it was 26%.
Pearse Doherty (Donegal South West, Sinn Fein)
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These are exceptions to your own credit policy and which you were a member of that board. Did it raise concern to you as a member of that board, and as chairperson of that board?
Mr. Fintan Drury:
I think that ... you know, one of the things that we would have done is monitored that on an ongoing basis, but these are figures and what these figures don't do is tell us what was behind those figures, what were the reasons for those exceptions. So, in the main, the exceptions to credit policy - and, ideally, if you're running a bank, you have no exceptions to credit policy or certainly as few as you possibly can - but the exceptions to credit policy were not running at a rate which would have caused concern.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Mr. Drury, were you aware of the concentration of lending at Anglo Irish Bank to a relatively small number of developers?
Mr. Fintan Drury:
I am aware that at credit committee and then the risk committee that there would have been issues around certain developers and the ... there were developers who were very high profile, very large developers who the bank did not lend money to. There was another group, if you like, who the bank had established strong relationships with over many years, some of whom have already appeared at this committee-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes but were you aware-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----of the concentration of lending to a small group of individuals? I think half the loan book went to, what, 20 individuals.
Mr. Fintan Drury:
I think if you look at the decision that was made in 2006, which was to stop lending in the Irish market, we were very conscious of the importance of staying committed to exactly the group you're talking about because they were the people who we had ... who had over the years had demonstrated themselves to be extremely good clients of the bank, and clients of the bank who could be supported and should be supported. So I was aware that there was a relatively small ... that the ratio, if you like, in terms of the number, a relatively small number of clients who had quite a significant percentage of ... of the lending, yes. Was I concerned about that? Not particularly.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. I'd like to refer to core booklet, Vol. 1, again, and it's page 97. These are the minutes of the risk and compliance meeting that was held on 24 May 2007. The issue being discussed is the suggested revision of Anglo's minimum capital ratio requirements. It says in the document:
The committee reviewed and considered the proposal and in particular the key reasons for the Group's suggested reduction in Minimum Regulatory Capital, namely
- The Group has constantly held a surplus over the minimum regulatory capital requirements, thereby creating a significant buffer in the event of an unanticipated and sudden losses in the Group.
- The high propensity of the Group to generate significant and new internal capital equity each year due to the - maintenance of strong average gross lending margins
- low cost-income ratios
- loan loss provision track record Following consideration, the proposal in the paper was approved on the basis of very compelling arguments outlined therein.
Now this is to reduce the amount of capital that would be held by Anglo bank just over a year before Anglo bank lost its capital. Why did you take a decision to place the capital at risk?
Mr. Fintan Drury:
I mean, I don't know is the answer to that question. I'm sure I knew at the time but I don't know why that decision was taken at that time. What I would say is that the decisions, and I think that the documentation in terms of the risk committee demonstrates the point that I made in my opening statement - and I'm not avoiding your question; I will come back to it - demonstrates the extent to which the risk and compliance committee was interrogating and pushing for the risk function within the bank, or the risk management team within the bank, to establish cause, establish reason why any changes in policy would be taken. So, if group management was making up ... advocating a change of policy, then that would have been interrogated very, very carefully at the time and the decision would have been taken on the basis of such an approach.
Pearse Doherty (Donegal South West, Sinn Fein)
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Do you regret that decision now?
Mr. Fintan Drury:
I'm not going to say that I regret specific or particular decisions in respect of items on an agenda, whether it's one particular meeting and there's eight or ten substantive items on that agenda, which occurred seven, eight years ago. You know, it would be wrong for me to turn around and say, "I regret that decision." Because it might be the right thing to say from a public relations point of view but, you know, I have to genuinely regret it. I can't say to you with any honesty, Deputy, that a decision that was made, I'm sure and certain, on the basis of full facts at that time, and would have ... and the presentation or view that was brought to the committee would have been interrogated ... and that that decision was taken, do I regret it, no.
Pearse Doherty (Donegal South West, Sinn Fein)
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But even knowing what you know now, for example, if you didn't reduce the capital in the bank at that time, the Irish taxpayers would have had to put less money into the bank that you were a director of. Do you not regret that fact? That was the consequences of the decision that was taken at a meeting-----
Mr. Fintan Drury:
Well, I think you are endeavouring to lead me into a path of ... what the Irish taxpayer, the losses that the Irish taxpayer has endured and narrow it down to a specific decision that was taken as I've said to you seven or eight years ago, which I was party to, because I was chairing the committee at the time, and saying do I remember why that decision was taken, and if I don't remember why that decision was taken, but I'm saying, it wouldn't have been taken lightly or fecklessly, that I, at the same time ... in light of what happened subsequently, do I regret it? And the reason why the Irish tax ... the reasons why the Irish taxpayer has endured such losses are multi-faceted, as I think we would all accept. They are not all down to Anglo Irish Bank; they cannot all be laid at the door of decisions that were taken at a moment in time by directors be they non-executive or executive directors or senior management in Anglo Irish Bank. Was that material to the losses that the taxpayer has endured? Of course. I'd be a fool to sit here and try and suggest otherwise.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, Mr. Drury. My colleague, Deputy Murphy, was talking to you in relation to your relationship with Brian Cowen. Can I ask you in relation to your knowledge of Anglo Irish Bank, if the board of Anglo, or, indeed, an executive within Anglo, to coin a phrase, wanted access to the political ear, who would be the persons that they would approach?
Mr. Fintan Drury:
Anglo was disinterested at the top level, where decisions like that are made in organisations, Anglo was disinterested in engaging with politics, in engaging with politicians, and ... to the ... certainly in respect of the former chief executive who became chairman, the level of disinterest was acute. So in all my time, both as a consultant, Deputy, in the '90s and then later as a non-executive director of the bank, and with the greatest respect to everybody in this room, I never came across, or I rarely came across an institution that I worked with, or had an engagement with in Ireland, that was less interested in politics and less interested in lobbying, or less interested in engaging with the body politic.
Pearse Doherty (Donegal South West, Sinn Fein)
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But we do know that Anglo did engage with politicians at the most senior level. We know that you provided ... you were a conduit for some of that engagement in terms of the telephone call from Mr. FitzPatrick and in terms of the board meeting with the Minister for Finance and within a couple of weeks, would be the Taoiseach of the State. So in relation, if as I said, executives in Anglo or the board wanted access to the political ear, who would be the persons in that bank that they would approach?
Mr. Fintan Drury:
I mean, you're jumping from three instances, each of which I have explained in detail, very directly and very bluntly, and you are assuming that because of those three incidents or episodes, which related to one politician and which were very different ... each of them very different by nature, whether people are prepared to accept that or not, that there was therefore a general interest in engaging with the body politic in ... within Anglo Irish Bank. I'm saying to you definitively there was not, and, therefore, I don't know, because I never ... I don't ever recall anyone in Anglo Irish Bank, when I was a consultant to the bank and when I was a director, lifting the phone to me, or asking me to meet them for a cup of coffee, and saying, "We're trying to get to see the Minister for the environment about planning issues to do with some of our client stuff." Never.
Pearse Doherty (Donegal South West, Sinn Fein)
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But hang on a second there, Mr. Drury, you've already testified to this inquiry that you were the conduit between Anglo Irish Bank and the board meeting which the Minister for Finance attended-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Sorry, well the dinner in Heritage House, which was made up of executives and members of the board, and also that you were the conduit in relation to the phone call. So the point you're making about never was you asked to do anything like that, it's coming against the evidence you've already testified to.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Mr. Fintan Drury:
I had a personal friendship with Brian Cowen. I'm happy to go back over this again and I've ... I mean, I think in fairness you're ... you are moving from the particular of a relationship, a friendship, which I as an individual had, and was known to have and never hid the fact that I had a friendship with Brian Cowen ... that I had that friendship with Brian and that when it came to a function ... let's deal with the phone call first, and I won't go into the ... I won't delay you-----
Pearse Doherty (Donegal South West, Sinn Fein)
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I wasn't asking in relation to the ... my time is limited now and I'm going to run out. Can I ask you to clarify this-----
Ciarán Lynch (Cork South Central, Labour)
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Get that clarified, okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I ask you to clarify ... would you be surprised if your name was mentioned by executives in that context of getting into the political ear or not?
Pearse Doherty (Donegal South West, Sinn Fein)
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You wouldn't be surprised?
Pearse Doherty (Donegal South West, Sinn Fein)
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So do you believe that executives may have mentioned your name in relation to getting into the political ear?
Mr. Fintan Drury:
I know, and you know, that executives have suggested that I would be in a position to get access to the political ear. But you also know that I have said very clearly, because you were listening to my opening statement, I have said very clearly, and I'm happy to say it again, I'm happy to read out what I said again, that I had no discussion with Brian Cowen, either in his time as Minister for Finance or in his time as Taoiseach, in regard to the affairs of Anglo Irish Bank. And let me be clear, I said "materially", material discussions.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. So why would executives be mentioning your name in the context of getting into the political ear in the lead-up to the crisis?
Mr. Fintan Drury:
Because, quite clearly, those executives are in a situation where the narrative that suits them, or suits their interests, or suits their particular view on what happened or how they would want what happened to have ... to be presented, and to be accepted ... they would want to create an impression whereby I had behaved in a manner which I have said to you and your colleagues, would have been inappropriate. And I would like to raise one other point here, even though I've made it before, because I think this is important. I work in part of my life in professional football. And it is often referred to as how corrupt the sport is and the extent to which agents, who represent footballers, are corrupt. And yet the very notion that a corrupt deal can be done by one party, one person sitting on one side of the table ... so let's imagine for a moment, Deputy, that I was prepared to go in and sit down with Brian Cowen and beat him up metaphorically to get him to act in a particular way in respect of Anglo Irish Bank, Paddy Power, Mainstream Renewable Power, I don't believe there are many people sitting in this room who believe that Brian Cowen ... that that conversation would have been a lengthy conversation.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I finally ask you in this question here and it's just referencing the Druids Glen meeting which you facilitated on 23 July? Were you aware, because you asked the questions, that there was no problems within the bank at that time in terms of challenging the conspiracy theory that some may have? So, were you aware that at the end of April, Seánie FitzPatrick had approached John Hurley looking for a guarantee for his bank - as has been suggested in evidence or given in evidence by Kevin Cardiff? Were you aware that a week later a DD, which Kevin Cardiff described as a person of substantial presence in the financial sector, also made such an approach? Were you aware that, at the very least, Seánie FitzPatrick was looking for a guarantee months before you arranged for him to meet with the Taoiseach of the country and spend a bit of time on the golf course and have that private meeting and dinner afterwards?
Mr. Fintan Drury:
Well, first of all, to finish with the last point, I didn't arrange for Seán FitzPatrick to meet with Brian Cowen. I did not arrange for Seán FitzPatrick ... for Seán FitzPatrick to have a meeting and a game of golf and a dinner afterwards with Brian Cowen, as you have profiled it in your question, and I was very clear as to what I had done. I had, at Brian Cowen's request and in discussion with Brian Cowen about his need to get a macro-perspective on what was happening in the economy, I had gathered a very small select group of people, rightly or wrongly, who at that time were Alan Gray, who is a respected economist, Gary McGann, who was chief executive of Smurfit Kappa, and Seán FitzPatrick, who was a highly respected chief executive of Anglo Irish Bank.
Ciarán Lynch (Cork South Central, Labour)
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The issue is on the guarantee.
Ciarán Lynch (Cork South Central, Labour)
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I think it's a lot of detail.
Ciarán Lynch (Cork South Central, Labour)
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The issue is on the guarantee.
Mr. Fintan Drury:
I appreciate that but the question was framed in such a way as to present what had happened in Druids Glen as being a meeting that I had set up for Seánie FitzPatrick with Brian Cowen. And that wasn't the case. That wasn't the case. So, was I aware of the evidence that Kevin Cardiff gave to this committee? No. No, and secondly, the discussion that we had in Druids Glen in July 2008 was specifically about matters which related to supporting and helping the Taoiseach to get a wider perspective on things.
Pearse Doherty (Donegal South West, Sinn Fein)
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Were you aware that Seánie FitzPatrick had, months before you facilitated Seánie FitzPatrick in meeting with Brian Cowen along with others in the meeting, the golf and the dinner, aware that he had approached the Governor of the Central Bank looking for a guarantee?
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I finish on this here with----
Ciarán Lynch (Cork South Central, Labour)
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Move on, Deputy.
Pearse Doherty (Donegal South West, Sinn Fein)
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Just quickly because you ... moving on from Druids Glen you say that no issue of banking was discussed. But, in terms of the dinner, you've given evidence saying that all things other than banking was discussed at the dinner. Now, is your evidence that no executive of Anglo Irish Bank addressed that meeting talking about the bank?
Mr. Fintan Drury:
Excuse me, I beg your pardon. I think I said "No, there was no material discussion." And I'm not being ... I'm not trying to be clever here with my use of language but I am endeavouring to be ... well, I'm not endeavouring to be truthful, I'm being truthful. I'm endeavouring to be careful therefore with what I say. I can't sit here, Deputy, and tell you that there was literally no discussion about Anglo Irish Bank but what I'm saying is, in the context of which this committee is doing its work, in the context in which we are looking at everything that has occurred over the last X number of years and the reviews, etc., of what did or did not happen, what I'm saying to you is, nothing material in respect of Anglo Irish Bank was discussed at that table.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Do you support ... but this is important because I took notes when you said all things other than banking was discussed. Do you accept that an executive addressed the meeting and discussed in general terms Anglo Irish Bank?
Mr. Fintan Drury:
I think I said in my opening statement that I wasn't sure whether it was ... I thought it was Seán FitzPatrick as chairman but it may have been David Drumm as CEO, had done a ... had made an opening comment at the start of the dinner and ... but there was no discussion. And again, whether or not they discussed, you know, you are welcome to the bank and this is what the bank does but there was no discussion about ... of material to the issues that subsequently occurred.
Ciarán Lynch (Cork South Central, Labour)
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All right. I'll bring you back in the wrap-up and we may be looking at this matter further as we proceed. I just want to deal with one question, Mr. Drury, before we move on the other questioners. And that relates to an inspection of commercial property lending activities at Anglo by the Financial Regulator in May 2007. This identified 30 separate issues-----
Ciarán Lynch (Cork South Central, Labour)
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Yes. I'll bring it up on the screen there in a few moments. In your ... in the document that was provided to you.
Ciarán Lynch (Cork South Central, Labour)
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It's in Vol. 1, page 67, if you want to look at the hard copy but I'll get the documentation on the screen before you. So, as I said, an inspection of commercial property lending activities in Anglo by the Financial Regulator in May 2007 identified 30 separate issues which it required to be addressed, at which it listed in the report dated 27 June 2007, and that's on the screen there in front of you. So what you see is a letter from Ms Mary-Elizabeth Donoghue, banking supervision department, at the office of the Financial Regulator. I'll just take two paragraphs of it there. The first letter, it's May 2007 and it's a letter to Mr. Drumm and it says, "I refer to the inspection of Anglo Irish Bank Corporation plc ("Anglo") carried out by the Financial Regulator between 9 and 17 May 2007." Then moving on to the third paragraph, it says, "The Financial Regulator's inspection process is a high level review and does not constitute a detailed examination or audit." So, at this stage, it's high level, it's not drilling down into very, very specifics. And as a result, it then goes on to say, "Consequently, the inspection process may not be relied upon to identify all issues arising in the areas reviewed." So, it outlines there that there might be other matters as things advance on.
So, if I could just move on to the regulator's letter then which is the next one up and you see there, there's a number of headings. There's the "Group Credit Policy" is one with nine items under it. The next one is the "Exceptions to Group Credit Policy" that has three items under it. "Credit Committee Terms of Reference" has another item under it. "Group Risk Management Operations Board" has two items under it. "Risk Management Reports" have two items. "Personal Guarantees" have an item. "Group Watch List" have an item. "Loan Review Process" have an item. "Breaches of Internal Limits and Targets" have two items but is broken down into more detail with some Roman numerals. It then goes on to "Stress Testing" has an item. "Hedging of Risk" has an item. "Condition Precedent" has an item. "Review of Loan Files" has three items. "Interest Only Breakdown of the Loan Book" has an item and "Job Descriptions" has an item. It's quite extensive. Were you, as a board member, made aware of this report and was it discussed by the board?
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Were you concerned by the issues raised in this report in any way with discussions that you may have had other executives of Anglo? While the hard copy of this report may not have been presented to you, were you familiar that the regulator's office had laid out such a long list? I think 30 specific items under 15 different headings. Were you aware of that document?
Ciarán Lynch (Cork South Central, Labour)
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No discussion with other executives of the board?
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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Sure.
Ciarán Lynch (Cork South Central, Labour)
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What period was this again, Mr. Drury?
Mr. Fintan Drury:
2004, 2005, I think, Chairman ... and raised concerns about some aspects of the bank's operations in Switzerland, which were small at the time. And on foot of that, the non-executive director in question met with the regulator's office in Switzerland to review their concerns and then subsequently called a special board meeting at which the facts were put in front of the board and the chief executive and he dealt with the matter to the satisfaction of the regulator. Now the reason I am, if you like, giving that example is, I suppose, two-fold. One, that the regulator in a ... in another-----
Ciarán Lynch (Cork South Central, Labour)
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Jurisdiction-----
Mr. Fintan Drury:
-----territory, another jurisdiction, exactly, had moved to deal with an issue that it had concerns about. And in moving to deal with it, had contacted a non-executive- specifically and deliberately contacted a non-executive director and brought the matter to their ... to their attention. We then, as non-executive directors made sure that the matter was dealt with by the non-executive director in question going and meeting with the regulators in the ... in Switzerland and then the matter was brought back to a full, specially convened board meeting and the matter was dealt with, which is, kind of, in contrast to the rest of my experience, which was that, frankly, the letter that you have just gone through raises issues that it would have been good to know about at that time-----
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Mr. Fintan Drury:
-----and I'm not saying again that I, as a member of the risk committee at the time, shouldn't, perhaps, have known of some of those issues anyway. So it's not about trying to distance myself from the issues in question but I am saying is that the engagement ... there was no ... whatever engagement was happening with ... between management and regulator wasn't filtering through to us.
Ciarán Lynch (Cork South Central, Labour)
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Okay, so maybe-----
Ciarán Lynch (Cork South Central, Labour)
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The ... as I said, there is 30 or so separate items there, 15 different headings. I am not too sure if there are other aspects of the banks or any remaining aspects of the banks that there didn't seem to be a concern about because the regulator's ... the letter indicates that they are looking at ... that this is not a concluded list. But what I am trying to scope out with you this afternoon, Mr. Drury, is how would you not be familiar with such an extensive regulator's review of a bank that you were a non-executive director of? How would you not be familiar with that? What would be the processes that would not be in place or were there processes in place that didn't actually work for you not to know this?
Mr. Fintan Drury:
Well, the truth is that there was a process whereby, as you will know, the risk function operated as an executive function, reviewed the loan book twice a year. We had a watch list and we had an impaired list and there were decisions made based on credit policy around some of which Deputy Doherty has already raised, which were around the whole loan book and that changed. And on a quarterly basis that information was being provided to, to the regulator. But in, in respect of the non-executive function, it seems to me that it behoves management to say we have a letter from the regulator ... Financial Regulator which is addressing-----
Ciarán Lynch (Cork South Central, Labour)
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Okay-----
Ciarán Lynch (Cork South Central, Labour)
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I'll deal item 14 and 15 there-----
Ciarán Lynch (Cork South Central, Labour)
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-----which is the "Group Risk Management Operations Board" and there is two specific items there. One is, "Terms of Reference should be reviewed periodically to ensure that they remain appropriate." and then it says, "Committee minutes should clearly reflect the discussions held." Now, I am still trying to establish the question I asked you earlier is: how would you not be aware of a regulator's report of such an extensive list? How would you not be aware of that?
Ciarán Lynch (Cork South Central, Labour)
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You weren't told about it-----
Mr. Fintan Drury:
-----and, and if I may, you know, item 14 and 15, the "Terms of Reference should be reviewed periodically to ensure that they remain appropriate". No. 1, the terms of reference were reviewed periodically. I have already said that they were reviewed internally and that on occasion, in terms of my six years on the risk committee, there were two occasions when in external, I beg your pardon, external advisers were brought in to review the whole gamut of risk within the bank and that I had made it clear in the minutes of either my last board meeting, maybe where my last risk committee meeting or, or at the penultimate one, that there should be another external review take place at the end of-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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But I am still-----
Ciarán Lynch (Cork South Central, Labour)
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-----not sure Mr. Drury and I will just repeat the question again. How were you not aware of such a significant regulator's report? Fifteen different areas of the bank that you were an non-executive director were flagged as concerns by the Financial Regulator's office. All the specific items ... I'm not talking about 15 issues, I am talking about 15 sections in the bank. How would you not be aware of such a regulator's letter?
Ciarán Lynch (Cork South Central, Labour)
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The question is very simple, Mr. Drury-----
Ciarán Lynch (Cork South Central, Labour)
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-----how could you not be aware of that?
Ciarán Lynch (Cork South Central, Labour)
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We-----
Ciarán Lynch (Cork South Central, Labour)
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We have been to Switzerland-----
Ciarán Lynch (Cork South Central, Labour)
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You were not told. Okay, all right.
Ciarán Lynch (Cork South Central, Labour)
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Okay, but in this regard, the regulator did contact Anglo Irish Bank. But I am just trying to get to know what was the process regarding the issue-----
Ciarán Lynch (Cork South Central, Labour)
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Okay-----
Ciarán Lynch (Cork South Central, Labour)
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All right, okay-----
Ciarán Lynch (Cork South Central, Labour)
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Okay, all right, thank you. Deputy Kieran O'Donnell.
Kieran O'Donnell (Limerick City, Fine Gael)
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Thanks Chairman. The documents I am referencing, Chairman, are Vol. 1 page 21-25, a report from Barry Herriott, management consultants and also page 17, the Nyberg report, and they relate around that the report from Barry Herriott undertaking an external consultancy in 2003 noted that the directors felt that the board pack "failed to ignite debate in important issues" and many directors expressed frustration on need for more debate on strategic issues. And the Nyberg report, "there is little evidence that board directors at the time were active in challenging ... bank's approach [and] its pace of lending growth''. Now, do you agree with these observations? What's your opinion on them? Did you challenge management enough as non-executive directors? How do you describe the corporate culture of the board during your period on the board in terms of the interaction of the chair with the management ... generally, how the board was run?
Mr. Fintan Drury:
I served under Peter Murray initially, as chairman of the board. There was a collegiate sense and I mean that in a positive way, Deputy, that everybody was focused on success and the bank being successful. And there was a collegiate sense in that there was nobody on the board who was attempting to grandstand or attempting to plough their own particular furrow to impress. But the collegiate sense also works in the ... in this regard I believe, that there was a singular focus and the singular focus was on success and the problem with talking in those terms now, is that people assume that that meant success was increased profits, share price going through the roof and that that was the only means by which success would be determined. But-----
Kieran O'Donnell (Limerick City, Fine Gael)
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I suppose, specifically in the time I have, the two points.
Kieran O'Donnell (Limerick City, Fine Gael)
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What-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes-----
Kieran O'Donnell (Limerick City, Fine Gael)
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So Mr. Murray was replaced as chair-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Now in that, can I just reference page 17 of Vol. 1 and it says, it's from the Nyberg report: ''In addition, the former CEO [vacated] was appointed as [a new chair of the board] in contravention of generally accepted governance principles at the time.'' That relates to Mr. Seán FitzPatrick being appointed as ... that's in the public domain ... as-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----as chair of the board. Did you support that appointment?
Kieran O'Donnell (Limerick City, Fine Gael)
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Did you canvass for that appointment?
Mr. Fintan Drury:
Absolutely not.
I told Seán FitzPatrick he was completely nuts to consider it. I felt that ... and if you look at the annual report for Paddy Power the first year that I was chairman, I make it very clear in my chairman's statement that I believe people should not spend more than two years on the board of any company.
Kieran O'Donnell (Limerick City, Fine Gael)
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So if you-----
Kieran O'Donnell (Limerick City, Fine Gael)
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And-----
Mr. Fintan Drury:
No. 2, I felt, from the bank's perspective ... initially I felt I had reservations about whether that was because of my, if you like, general disposition in respect of these things I wasn't sure that that was the best thing for the bank. I never canvassed for it, but what I did do was, along with one of the other non-executive directors, I took soundings as to how it would be received in the marketplace. So we talked with-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Why? Why did you do that, and who did you do that with?
Kieran O'Donnell (Limerick City, Fine Gael)
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And if ... yes, and if you felt you'd issues with corporate governance whereby you should not become chair of a company when you're CEO, why did you canvass soundings and why did you support Mr. FitzPatrick being appointed as chair?
Mr. Fintan Drury:
For the very reason that, despite the fact that I had reservations about it, from a, if you like, a philosophical point of view, Deputy, that I was open to the view, the opposite view, the counter-view, that there are always exceptions, or can always be exceptions to any rule. And that he was a particularly talented individual who had built the bank, largely, and who was revered, again not just in ... in Ireland, but globally with-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Was he a bit of a sacred cow at the time?
Kieran O'Donnell (Limerick City, Fine Gael)
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But, in hindsight, was it the correct thing to do for the bank at the time?
Ciarán Lynch (Cork South Central, Labour)
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Be careful here now.
Kieran O'Donnell (Limerick City, Fine Gael)
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Can I just do a point of clarification?
Kieran O'Donnell (Limerick City, Fine Gael)
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You speak about credibility and honesty and so forth through your statements today. And the question, I suppose, that, to an ordinary person looking in, is it credible that, in Druids Glen ... that the group are a monoline group, they were effectively four people, three people along with ... four people along with Mr. Cowen, four people had a commonality, they were a monoline group. They either had been ... they were on the board of Anglo, or they were former members of the board of Anglo, one of them on the board of the Central Bank. Is it credible for an ordinary person looking in to say that you never discussed banking? You discussed the economy. How could you discuss the economy without discussing banking?
Ciarán Lynch (Cork South Central, Labour)
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That's your question, Deputy. Mr. Drury?
Ciarán Lynch (Cork South Central, Labour)
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You can, indeed.
Kieran O'Donnell (Limerick City, Fine Gael)
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The public looking in. The people that ended up paying?
Ciarán Lynch (Cork South Central, Labour)
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Can I reshape that for the witness, Deputy?
Kieran O'Donnell (Limerick City, Fine Gael)
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No, now it's ... Chairman, just a very kind of-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Chairman, can I put my ... I'll explain it to Mr. Drury.
Kieran O'Donnell (Limerick City, Fine Gael)
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No, I'll explain it. Allow me to explain.
Kieran O'Donnell (Limerick City, Fine Gael)
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Anglo Irish Bank has cost the ordinary person, taxpayer out there €30 billion that they will never see again. So the question I'm asking is: is it credible ... Anglo was in survival mode at that time; share price was falling; two weeks before the unwinding of the contracts for difference had taken place; major liquidity problems. They were a monoline group. It wasn't a diverse group. It was a group of four people, all direct links with Anglo. So is it credible - you were saying you discussed the economy - first of all, is it credible that ye did not discuss banking and Anglo Irish Bank?
Ciarán Lynch (Cork South Central, Labour)
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Wait for a response now, Deputy.
Kieran O'Donnell (Limerick City, Fine Gael)
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And, secondly, is it credible that you discussed the economy without discussing banking?
Mr. Fintan Drury:
Well, I have already ... and the reason I asked you the question was because I think a great many ordinary people do accept that it is credible. But, as I said in my opening statement, there are a great many people who don't and who never will, no matter what they hear and who they hear it from. I regard myself as a pretty ordinary person. I regard myself as somebody who behaves in a particular manner and who has a code of ethics and standards, which you alluded to in your opening before you asked the question. And so the defence I'm offering of what I ... the account I gave you of what happened in Druids Glen is simply this: you either accept what I told you under affirmation as being a truthful account of what transpired on that occasion, or you don't. And I can stay here until Tibb's Eve, Deputy, and make the same point over and over and again, and I accept - I may not have said it in my opening statement - I have friends who find it lacking in credibility. So I accept that there's going to be a percentage of people who will say, "How could that have happened?" But the reason people say that is because of what happened subsequently, not because of-----
Kieran O'Donnell (Limerick City, Fine Gael)
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But-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Well, in the limited time-----
Kieran O'Donnell (Limerick City, Fine Gael)
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But in-----
Kieran O'Donnell (Limerick City, Fine Gael)
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In real time, at the time, Mr. Drury-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----in real time at the time, at that particular point in time, and in real time, not in hindsight, in real time, Anglo was in trouble as a bank.
Kieran O'Donnell (Limerick City, Fine Gael)
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Share price was falling.
Kieran O'Donnell (Limerick City, Fine Gael)
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Contracts for difference was a major issue for Anglo at the time.
Kieran O'Donnell (Limerick City, Fine Gael)
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No, no, but I-----
Mr. Fintan Drury:
No, but I'm happy to discuss it, if you wish. I mean, of course, it was a major issue. I alluded to it in my opening statement. Of course, it was. And it is a substantive reason, a very substantive reason, why the bank got into the difficulties it got into, in my opinion, and I believe that that will, ultimately, be established. But-----
Kieran O'Donnell (Limerick City, Fine Gael)
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But that was all happening around the time of Druids Glen?
Mr. Fintan Drury:
Yes, but what you are omitting to recall in your presentation of what happened around Druids Glen is that I have already told this committee that, No. 1, Brian Cowen was a personal ... is a personal friend of mine. I wanted to help Brian Cowen. I felt I could help him by having a discussion with a number of people who would have insights into the economy. I did not discuss it, whether or not he would do ... be prepared to help with Gary McGann on the basis that Gary McGann was a non-executive director of Anglo Irish Bank. It had nothing to do with it. Gary McGann was chief executive of Smurfit Kappa. That's why I approached him, and he knew Brian Cowen and trusted Brian Cowen, and vice versa. I did not approach Sean FitzPatrick because he was chairman of Anglo Irish Bank; I approached Sean FitzPatrick because he was, even then, Deputy, somebody who was revered as a highly intelligent, highly motivated, and highly successful businessperson who had a wide knowledge of the Irish economy. And I approached ... I didn't approach-----
Ciarán Lynch (Cork South Central, Labour)
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You're into the wrap-up.
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.
Kieran O'Donnell (Limerick City, Fine Gael)
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You mentioned in your presentation today, you said that, "I'm not blameless."
Kieran O'Donnell (Limerick City, Fine Gael)
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And you spoke about that ... genuinely you regret?
Kieran O'Donnell (Limerick City, Fine Gael)
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So what do you feel you were not blameless about in terms of the context of Anglo? And what do you genuinely regret in terms of your period as being on the board of Anglo Irish Bank from '02 to '08?
Mr. Fintan Drury:
There are a number of things, some of which, Chairman, I ... on the basis of earlier conversations with your legal advisers, I think I have to be particularly careful about. And there is an element of frustration, having waited seven years to make any public comment about what happened, to be constrained by what I can say. But I respect that and understand that to be the position. And, at the same time, I don't want to appear to evade or elude my own responsibilities. So I look at things ... for example, I'll give you simple examples, if I can. I look at things as serious as that one which I already alluded to, I think, in response to Deputy Murphy, which is the question of the decision to morph, as it were, the role of chief risk officer with finance director. I think that was a mistake.
And I think I was smarter than to allow that to have happened or not to have seen that as being a mistake, and that's nothing to do with what happened subsequently. It's just the principle of that for a bank that had got quite large by that time. But, from there to smaller things like, you know, I would have argued with Seán FitzPatrick at some stages about the need for an economist within the bank. And ... but I didn't push hard enough. I had issues around, around Seán Quinn's CFD holdings, which I did articulate, but I look back and say, "Maybe I should have been stronger". So, that's being as ... that's ... those are three example, very different examples, where I'm trying to be as candid as I can.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you very much, Mr. Drury, and thank you, Deputy O'Donnell. I just want to deal with two matters, just on a point of clarification, and I'm just proposing a five-minute comfort break at that ... after which. In questioning there with Deputy O'Donnell, Mr. Drury, the question, kind of, indicated with regard to the corporate culture of the bank during your period of time on the board, and you did elaborate in regard to Mr. Murray. But maybe you could just move into some of the space during Mr. FitzPatrick's time as well.
Mr. Fintan Drury:
Sure. I think there tends to be a change when you get two very different personalities. So, there was no change in terms of, you know, the quality of information, the standard management of board meetings, but there was a different type of dynamic, and I referenced the ... I think I used the term "collegiate" when I referenced Peter Murray and his stewardship of the board. Sean's was equally so in many ways, but just with a different hue, or a different flavour.
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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Okay. And just to round off one item with regard to the Druids Glen event. He ... Mr. Cowen was the organiser of that, am I correct?
Ciarán Lynch (Cork South Central, Labour)
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Yes. Who paid the bill?
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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Okay. It's 14:52, I'm proposing that we will return spot on at ... oh, sorry, at ... within the hour, 15.00, if that's agreed? At 3 o'clock, yes. I'm on a 24-hour cycle at the moment. Just, one second, we're still in session, folks. Please sit down, please. In doing so, the ... I would like to remind the witness ... is reminded that once he begins giving evidence he should not confer with any person other than his legal team in relation to the evidence or matters that are being discussed before the committee. With that in mind I now suspend the meeting until 3.00 p.m., and remind the witness that he still under oath until we ... and, when we resume. Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Just to remind members to get their mobile devices back into safe mode if they have been using them during that short break. Okay, all right. So with that said, I now call the session back into public hearing. Is that agreed? And in doing so, we'll continue our engagement with Mr. Drury this afternoon and if I can invite Deputy Joe Higgins. Deputy, you have ten minutes.
Joe Higgins (Dublin West, Socialist Party)
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Mr. Drury, in a presentation to the board of Anglo dated 26 September 2008 - shortly after you left the bank or not too long after - entitled "Strategic Options", David Drumm notes that the market sees Anglo as a monoline bank with concentration risk in commercial property and he proposes a merger with IL and P which would create a more diversified business model. In your opinion, did the fact that Anglo was considering a merger with IL and P at this time indicate that the business model pursued up to that point had failed, or not?
Joe Higgins (Dublin West, Socialist Party)
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No, I understand that, Mr. Drury, but-----
Mr. Fintan Drury:
No, no, my view is I don't believe that if a chief executive presents the idea of a merger with another organisation in the industry, in that industry, that that necessarily suggests for one moment that the chief executive of the ... in this case of Anglo Irish Bank is deeming that the business is failing or has failed, or that the business model is not successful, or cannot be successful. I think that that would have been driven by a longer-term perspective which, I presume, he was taking at the time and which he was presenting as one of the options for the board to consider in light of the kind of turmoil which was happening within the global markets, and indeed in the domestic market, and that it was one particular option. So that ... I wouldn't read more into it than that. I don't believe it suggested or necessarily hinted at-----
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Joe Higgins (Dublin West, Socialist Party)
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Mr. Drury, you were a director from 2002 to 2008 and I'd just like to take you through, very briefly, the rate of growth in Anglo lending, corresponding largely with that time, and Nyberg and other reports refer to this. But, in 2002, from annual reports, Anglo had €13.3 billion in loans. In 2003, that went up by €4 billion. It went up by €7 billion in 2004; by €10 billion in 2005; by €16 billion in 2006; and by €17 billion in 2007. So, €54 billion in extra loans between ... in five years. And Patrick Honohan, now Governor of the Central Bank, in The Economic and Social Review, summer 2009, said:
A very simple warning sign used by most regulators to identify a bank exposed to increased risk is rapid balance sheet growth. An annual real growth rate of 20% is often taken as the trigger. Each of the locally-controlled banks had at least one year in which this threshold was triggered. One of them, Anglo Irish [Bank], crossed it eight of nine years and indeed its average annual rate of growth, 1998-2007, was 36%.
And we had another witness to the inquiry here, Mr. Bill Black, a former US regulator ... are you familiar with him? Yes. Mr. Black said, "The rule of thumb on banking for many decades if you grow more than 25% a year, you will likely fail." Were you aware of the risks of this kind of exponential growth in the loans of Anglo Irish Bank?
Mr. Fintan Drury:
First of all, I think the loan growth that you've referred to was over a period of time when the bank's territorial growth was also significant. So, this was ... in 2002, would have been a largely Irish bank and over the period in question that you're talking about, such significant growth in the overall size of the bank and in the overall loan book, the bank had grown significantly in the United Kingdom and it was also going through significant growth in the United States, as I mentioned earlier, under the stewardship of David Drumm and I think that was a factor in the decision to appoint him as chief executive ultimately. So, I think the ... in some respects, we're not comparing like with like when you look at 2002 and 2007-2008. I also believe that, in those particular territories, the economies of those markets were going through significant growth and a lot of the growth in the UK was concentrated in a part of the UK which has always had sustained growth.
I think, having said that, Deputy, that if you look at it through the prism of economic analysis that someone like Bill Black would be renowned for, then you see that growth in particularly bleak terms. I'm not saying that's incorrect; I'm simply saying that, you know, economic views and economic opinion, obviously, can be ... I'm conscious of who's sitting on your left but can be, kind of, quite polarised.
Joe Higgins (Dublin West, Socialist Party)
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Yes.
Mr. Fintan Drury:
His particular perspective would have been met by what he looked at, or would have looked at, in the case of Anglo Irish Bank, and I'm not disputing that. Patrick Honohan's view, expressed in September 2009, was a view which was informed by what had happened, what had occurred, and the reality is that, over the period that you are talking about in terms of that stellar growth, which ... and that's exactly what it was-----
Joe Higgins (Dublin West, Socialist Party)
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Yes.
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Mr. Drury, just for time, I'll move on. At that period as well, the profit growth was also stellar - 2003, 33%; increasing for most years up to 46% growth in 2007. Did profit growth at this exponential rate risk leading to reckless lending in Anglo?
Joe Higgins (Dublin West, Socialist Party)
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How would you explain then, Mr. Drury, that of the loans that went from Anglo to NAMA, €31.97 billion worth, or 92% of the total book that went to NAMA, were loans given out by way of exception to stated credit policy? Source is IBRC, Vol. 2, page 3.
Mr. Fintan Drury:
Well, first of all, I think that the loans and the loan transaction between Anglo Irish Bank and NAMA have to be seen in the context of what NAMA's mandate was and what NAMA was set up to do. And the values that NAMA achieved in taking on those loans has to be seen in the context ... well, it's not for me to judge it, but it in time will have to be seen in the context of how those loans have ... those loan portfolios have performed post-sale by NAMA to third parties and post the sale of those loan portfolios by third parties. And that the ... that is the ... that was the basis on which, ultimately, the value of those loan portfolios will have to be judged in time.
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Joe Higgins (Dublin West, Socialist Party)
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Can we look at Vol. 2, page 78, please, and this, Mr. Drury, refers to the bonuses in Anglo Irish Bank, the ten top bonus between 2001 and 2008. I'm caught for time here-----
Joe Higgins (Dublin West, Socialist Party)
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-----but if we take the right-hand column, I'll just take the top person, who I assume is the same person in each of those years, and the right-hand column shows, in 2001 for this person, a bonus of €1.7 million; 2002, €1.2 million; 2003, €1.4 million; 2004, €1.6 million; 2005, €1.5 million; 2006, €1.9 million; and 2007, €2 million. In evidence to this inquiry yesterday, Ms Ethna Tinney, a former EBS board member, said:
The bonus system in banks is crazy. You get a bonus for lending money out, there is no incentive to get it back in. Such a system encourages greed and recklessness. It is no wonder that banks go bust from time to time.
Would you agree with her?
Mr. Fintan Drury:
I think the issue around the remuneration of people in financial institutions has been ... I didn't hear her evidence, but taking what you've said as representing what she ... her point, I think she's right in the sense that historically, and again today, despite what's happened, and I don't mean in Ireland, I mean globally, again today we see evidence all the time that people in financial services institutions get paid phenomenal amounts of money for doing the work they do. And the basis on which they are entitled to those significant sums, and entitled to very significant bonuses, are out of kilter with how financial ... or with how remuneration is structured in other areas of industry, it seems to me.
So I think what she has expressed, as a former director of a mutual, is a view that a great number of people feel, and even people who have had exposure as she has and as I've had ... have had exposure to the financial services sector. But the market sets these ... I'm not saying its right, but the market does set these rates and remuneration is generally tied to performance of the institution, if not of the individual.
Joe Higgins (Dublin West, Socialist Party)
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Finally, Mr. Drury, would you ... you referred in, perhaps, the penultimate paragraph of your verbal evidence today about "gorging", we "gorging" in the boom years, "insatiable appetites", and I think you said, "I sat there myself and ate more than I needed." I'd like to ask you who you're speaking about when you say "we"? And also, I'd like to ask you would you include that as you describe it ... would you include your venture that was published in The Irish Mail some time ago to develop a golf course near Budapest, in Hungary, on foot of loans from Anglo and involving the compulsory purchase of local people's lands? Would you include that in the description here of being ... well, it's not your word, but excessive? Or it would indicate maybe what you said there.
Joe Higgins (Dublin West, Socialist Party)
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Would that be the type of activity you would be referring to or something else?
Mr. Fintan Drury:
Well, let's first of all deal with the type of activity to which you refer and let's be clear about what was in train. I had a long experience of Hungary going back to the 90s when I established an office for my communications consultancy in Budapest. I knew the Hungarian people quite well; I had worked very closely with a number of people in a number of businesses in Hungary. And I believed in the value of what the Hungarian people and the Hungarian state was attempting to do post its accession to the EU. And I always maintained a strong interest there.
Far from approaching the project, in the way in which you have profiled it, the project was an investment, a proposed investment, of a significant amount of money by a number of people - a small number of people - in a development in an area of ... outside Budapest called Pilismarót, which is not an area where anybody lives, was wasteland, and which the mayor, who was, as it happens, an independent politician of left wing disposition, wanted to see development in order that his community would benefit from the introduction of something that he saw and members of the council saw as being a positive venture. As with anything like that, and you people in this room will know and understand this better than I, there is always people ... or likely to be people who are not in favour. The project was not bankrolled by Anglo Irish Bank. There were no loans from Anglo Irish Bank. And the emphasis you have placed on a particular media or medium, is one which was challenged at the time, as being incorrect and was, subsequently, not followed through on. I mean by that the report, just to be clear, was not accurate in a great many respects. So, the representation or presentation of me, in this case, as being somebody who behaved in a manner which was to disenfranchise people from areas of land which they rightfully, or rightly wanted to manage in a particular way against their wishes, was completely and utterly false - No. 1.
No. 2 - There was never a line of credit established between me and Anglo Irish Bank in that respect, which gives me the opportunity to, if I may, Chairman, just make one point of clarification. In 2005, my business wanted to make an acquisition and we needed to raise €1 million to make the acquisition. And it was discussed at the board of my company and we decided to proceed and I said, "I would like Anglo Irish Bank, as I'm a director of the bank, I would like Anglo Irish Bank to have the opportunity to tender for the business, but I cannot go and meet with and deal with and interact with the bank." So my chairman, who had no connection with Anglo Irish Bank whatsoever, went to a number of ... two banks, one of which was Anglo, and a deal was done whereby Anglo became the lender to the business and that is ... I'm simply using that to emphasise the point that in my dealings, I attempted at all times to create an appropriate distance between me and other parties in respect of my directorship of Anglo Irish Bank. The presentation in The Mailwas ... let's put it this way, it was inaccurate and misleading.
Ciarán Lynch (Cork South Central, Labour)
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Okay, there was the root of the question. I know you went over to Budapest and Hungary and all the rest of it-----
Ciarán Lynch (Cork South Central, Labour)
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But the root of the question ... I think the ... I just want to move this on so we're not revisiting, was the ... to quote yourself, "the gorging" question-----
Ciarán Lynch (Cork South Central, Labour)
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And what ... and then we can ... just so we can complete that section ... session, Mr. Drury, and then we move on.
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Mr. Fintan Drury:
Look, I think its ... it's, of course, the case that a significant percentage of the population had no hand or part in what occurred, but, equally, if we are honest as a people, a great many people also over-indulged, took too much risk in their own lives, and, as a result, that was really what I was trying to present in terms of my ... what I see as a, kind of, unique insight, as a non-executive director of a bank that was, if you like, crafting the menu and putting the menu on the table. I have to take responsibility for having been on the board of that bank, that was crafting such a menu. But I was also saying I take responsibility for being somebody who sat at the table and said, you know, "I want more. I want to do more. I want to take on more." That was really what I was trying to explain.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you. Deputy Michael McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you very much, Chair. Mr. Drury, you're very welcome. Can I ask why the witness statement you provided, in advance, is so short? You provided a three-page statement; it strikes me as very short.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Fintan Drury:
-----in any way evasive. I tried to answer the questions that were posed of me in as clear a way as possible. I was conscious of the need to be accurate. I was more concerned to be clear, direct and accurate than I was to be in any way, perhaps, detailed. I probably ... well, not probably, I definitely suffer from a malaise of saying, generally, saying too much rather than saying too little. And I was particularly conscious that there are a lot of people, whether ... you know, whether people like it or not, there are a lot of individuals who I came across in Anglo Irish Bank who if, depending on what I said or didn't say, I could be imputing people's integrity, I could be ... and whatever about potentially doing that here, in a verbal-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. If I can take you back to the issue of exceptions to group lending policy - and a number of the questioners raised it already - and, on page 3 of Vol. 2, there is an extract from a report prepared by the IBRC special liquidator, and Deputy Higgins has already referred to this. And at the bottom of it, it makes it clear-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, page 3.
Ciarán Lynch (Cork South Central, Labour)
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It'll be on the screen there shortly, Mr. Drury.
Michael McGrath (Cork South Central, Fianna Fail)
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That, essentially, 92%, in value terms, of the Anglo loans transferred across to NAMA at their origin were, essentially, an exception to credit policy. And there are various references in the document to the different levels of exceptions. But I have to ask the question: what is the purpose of a credit policy being in place if it's going to be breached so extensively and so regularly by the bank?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Fintan Drury:
-----set to ... set aside in that number of cases, then the question does arise: well, does the credit policy need to be changed or does the credit policy need to be abandoned or are we actually just saying, corporately, if you like ... and I don't mean this literally, or is there an acceptance that the credit policy just can't work and we can't work our territory, our market, within that ... within the-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Fintan Drury:
I think that the exceptions to credit policy ... the increase in the number of exceptions to credit policy in the latter stages was down to factors which were about the growth of business that had occurred and ... but the slowing down in market conditions and the lack of liquidity in the ... generally within the market. And the lack of liquidity didn't just impact on-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And, whatever about breaching the bank's own internal credit policies or guidelines, the fact that the Central Bank had a single sector exposure limit of 200% of the bank's own funds, and Anglo's exposure to real estate business sector, was 588%. So-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----it was three times the limit.
Michael McGrath (Cork South Central, Fianna Fail)
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And would you have been aware of that? Would the board have been aware of that-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----Central Bank limit?
Mr. Fintan Drury:
-----not of ... not ... we would not have been aware ... sorry, I have to be careful because by ... I have no recollection of being aware of that limit and the ... and, if you like, the extent to which that limit was, as you were saying, as you've presented it, Deputy, was ... was-----
Michael McGrath (Cork South Central, Fianna Fail)
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So, to your knowledge, the board was not informed that Anglo's exposure to property was almost three times the Central Bank limit.
Michael McGrath (Cork South Central, Fianna Fail)
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Can you explain to me the role of the credit committee? You were on the risk committee and you chaired that for a short time.
Michael McGrath (Cork South Central, Fianna Fail)
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The credit committee appeared not to have any non-executive directors as members. Is that correct? It was a management-----
Mr. Fintan Drury:
Yes, the credit committee, in any financial institution that I would be aware of doesn't have non-executive participation. It is the weekly credit committee where the most senior people in the bank would review ... would hold a meeting where credits would be brought forward, proposals would be brought forward by executives, individual lenders-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. But you do say in your statement that the risk and compliance committee, of which you were a member, was the committee that the detail of different loans would be considered. So what was the role of that committee in lending?
Mr. Fintan Drury:
I actually ... I was hoping nobody would pick that up because I think that was a ... that was ... despite the care I took with composing and answering the questions, when I read that again before coming in here today, I really felt that it gives a false impression, which was not intended. The role of the risk committee was to sit every month and be ... present ... we did a number of things but in terms of the context in which you're raising the role, the role was to sit and review the loan book as presented to us by the head of risk. So it wasn't being presented to us by the head of banking or the head of credit, it was being presented to us by the head of risk who was saying, "Here we are, a month on from last month's meeting, we had X number of cases on the watch list, we have moved-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Fintan Drury:
-----five of those cases from the watch list to the impaired loans book [... I beg your pardon] the impaired loans list. Two of those that were on the impaired loans book have moved back to the watch list"; and to then interrogate, if we felt it was required, with him, with his colleagues, what was happening in terms of the overall-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes-----
Michael McGrath (Cork South Central, Fianna Fail)
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But no role in actual lending decisions.
Michael McGrath (Cork South Central, Fianna Fail)
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The board pack that you would have received as a member of the board, what would that have contained typically in advance of a board meeting?
Mr. Fintan Drury:
It was very detailed. It would have contained the monthly accounts, it would have contained minutes of the previous meeting, I beg your pardon, minutes of committee meetings that had transpired between the two board meetings, the chief executive's report - sometimes quite detailed, sometimes just bullet points, and then the chief executive would deal with those issues as ... at the actual meeting - and also it would have obviously contained the management accounts for the period.
Michael McGrath (Cork South Central, Fianna Fail)
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And-----
Michael McGrath (Cork South Central, Fianna Fail)
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Sure.
Michael McGrath (Cork South Central, Fianna Fail)
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And would details of credit decisions ... would the credit committee minutes-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----for example, have been included?
Michael McGrath (Cork South Central, Fianna Fail)
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Yes. But the risk committee had full oversight in terms of information of-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----the extent of property lending.
Mr. Fintan Drury:
-----and the notion that, you know, any question about whether or not we were ... we were active as ... as a committee. I mean, I can remember a number of examples - one, in particular, where, I think it was around 2000 ... I beg your pardon, 2005-2006, maybe ... it could have been as early as 2004, I had concerns about the amount of lending going into the hotel and leisure sector. And we had, you know, quite a significant amount of lending in that sector and there was already a slowdown starting to percolate through to ... because, obviously, a hospitality sector tends to be the first to feel the sense of a cold wind. And I remember raising that at committee and I remember discussing it with Pat Whelan who was the ... at that time, the head of risk and, as would have happened with Pat Whelan as head of risk, about a week later he rang me and asked me to come in and he had done a really thorough analysis of the area. He had gone back and looked through everything and he had some issues to raise and there was progress made in respect of that over the following number of months. I remember as well that, even though trading was a very small part of Anglo's portfolio of work, we had a problem with a trader on one occasion who had gone past his limits. And there was a discussion about it and myself and a number of the other non-execs were asked our view and we said, "Well, look, you know, he needs to be given a warning", and it wasn't ... now, it wasn't ... he hadn't dramatically overshot his limits but, again, when ... at the next meeting ... or, I beg your pardon, not the next meeting, but within a number of months, it had happened again, and we made a decision at committee that-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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What percentage of Anglo's loan book was ultimately property-related?
Michael McGrath (Cork South Central, Fianna Fail)
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You spoke earlier about land and development being in the region of 26% and that's evidenced in the books. The major category of loans that Anglo presented were investment. And as I understand it, when a loan was provided for a development, once the development was completed, that loan was transferred into investment from land and development. So, ultimately, of Anglo's loan book, what percentage was-----
Michael McGrath (Cork South Central, Fianna Fail)
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Over 90%?
Ciarán Lynch (Cork South Central, Labour)
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Thank you. Deputy John Paul Phelan.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you Chairman. Good afternoon, Mr. Drury. Briefly at the start I want to refer to the Heritage dinner again. I took a note as you were speaking earlier and you said that the dinner of April 2008 was not special, that Mr. Cowen just happened to be next on the list and that it had to be rearranged a few times because of diary clashes. You also said that in your time eight ... you would have attended eight to ten such events. And you said that - I'm not sure whether you used the word "civil" or "public" - senior civil or public servants would have been invited to attend.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can you tell the inquiry who those people would have been?
Mr. Fintan Drury:
I also said that there were politicians from other political parties who had attended. I don't think that's useful, I don't think that that's fair or reasonable to the people involved. They fulfilled what they saw, and correctly saw, as a social event and they conducted themselves, in my experience of any of the events that I attended, they conducted themselves in a completely appropriate manner. So I think to ... I mean I was careful in what I said, deliberately so. The reality is that over a period of ... because these were in place, Deputy, before I became a board member. So over a period of close on ten years, I would think, there would have been quite a number of people who fulfilled that function and ... I can remember, you know, a number of ... one ... number of them in particular where individuals came in and they talked about, you know, what they did and they listened to what, you know-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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That's fair enough, I'm just interested-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Well, I'm interested to know and I think it is within the inquiry's terms of reference, particularly if any of them operated in public service areas that dealt with financial services or banking or development or any of the ambit that the inquiry has. I think that that ... You should answer that question.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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No, they are public servants, in particular.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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And politicians as well, I mean I know ... I can-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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But, I mean, all of them could, in theory at least, come under the ambit of what we are inquiring into. And that's why I think you should-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can the Chairman advise me and maybe stop the clock?
Ciarán Lynch (Cork South Central, Labour)
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Okay. Yes, I can, indeed. Can we just speak to this for a moment? If ... it's not unusual for public servants, politicians and other people to be at hosted events by associations, could be the Construction Federation Industry, it could be the Irish Farmers Association, it could be ICTU, it could be SIPTU and it could be financial institutions, Banking Federation of Ireland and so forth.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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That's why I narrowed it down to financial and-----
Ciarán Lynch (Cork South Central, Labour)
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Yes, is the clock stopped? I've got to ... I know. If the matters are germane to what we're discussing here and if we had individuals that are very relevant to matters that have been discussed here before, if they're not really, kind of, in the general arena of discussion here, well, I think that's a different matter then, you know?
Mr. Fintan Drury:
Okay. I am not in a position ... First of all, Chairman, I'm not in a position to recall all the people. No. 1. So if I was to name people who I recall that's, I think, not particularly ... you know, not fair or not reasonable. I think the point I was making in describing it as I did this morning, Deputy, was this was something that had been in place for quite some time and the timing being ... the timing being what it was, you know, it was Brian Cowen who I had spoken to some time previously and as it happened, the way circumstances dictated, it fell that the opportunity was on the date it was. And I was trying to create or establish, because it's the truth, that there was no ... you know, it ... we weren't asking for Brian Cowen to meet us at that particular time because we wanted to discuss things with him because actually ... and so we had had a statement like that about it-----
Ciarán Lynch (Cork South Central, Labour)
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Can I engage with you here for a second? Okay. Look, I don't want to tread onto ground that, what you call it, just because a name is put out there, it creates a whole snowball effect and all the rest of it. What I could maybe do, Mr. Drury, and it allows us to move on as well from this, is if you could furnish the names, as you best recollect them-----
Ciarán Lynch (Cork South Central, Labour)
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As you best recollect them. And what would happen is our support and legal team would examine that to see if it's germane or not and if further clarification needs to be drawn from that, we can do so, okay? But for this moment in time I would ask the Deputy to move on and out of that area. Thank you.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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That's perfectly fair. I was asking him what I thought was an innocuous enough question.
Ciarán Lynch (Cork South Central, Labour)
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Okay. We're back on the clock now so you can talk as much as you want.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Mr. Drury, can I ask you why did you leave the board of Anglo in 2008?
Mr. Fintan Drury:
I was appointed in 2002 after an hiatus because I was first approached in 2001. And when I joined in 2002 it so happened that I had been approached by Paddy Power to go on the board of its ... onto its board, excuse me. And I had, as I referenced in answering Deputy O'Donnell earlier, I had a view that one stays ... does two three-year terms. I mean, the standard is you're invited and asked and you're assessed as to whether you're up to the business, up to the job or not and you're given a three-year term and if you ... if you're half decent I think you tend to be asked to do a second three-year term. But in the case of ... but my view was that you should do two three-year terms and then move on.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Mr. Fintan Drury:
And so when I spoke with Seán FitzPatrick in the autumn of 2007 I said to him that I wanted to ... in case anybody was thinking of asking me to do another term, I wanted to be absolutely clear I was not prepared to do so. Because there were quite a number of people in Anglo, on the board of Anglo who had stayed, you know, who were on for longer and, you know, he accepted that.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay so it ... It wasn't related to any possible impending sense of apprehension or whatever, about, about the bank?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Can I ask you, then, in relation to questions touched on by previous speakers, loans taken on by NAMA from Anglo? Estimated that €9 billion worth of interest roll-up loans were taken ... were transferred from five banks, €3 billion relating to Anglo. Were you aware of the level of interest roll-up included in Anglo's loan book?
Mr. Fintan Drury:
In the same way as I answered, perhaps not very authoritatively, Deputy McGrath's question - I want to be careful about how I answer you because I want to be, again, I want to be truthful - I don't recollect being aware of the level of roll-ups. However, I do think when we discuss roll-ups, we need to understand that the nature of Anglo's business meant that roll-ups in Anglo's case were going to be higher. By definition, the nature of its business meant they were going to be higher than they would be for others.
I also think when we talk about €9 billion, and five institutions, we're actually talking about, realistically we're talking about four, because EBS's percentage of the €9 billion was, I think - I don't know what the percentage was but I think it was 0.1% . And so the ... therefore, the amount of ... the total amount of the €9 billion, the amount of that that Anglo held, perhaps, wasn't as stark as it might appear for those two reasons. And I think when you're in development lending, which we ... which the bank was, you know, roll-ups is part and parcel of that business, and you know, business ... banks that are in the business today, that Anglo was in then, are doing roll-ups at that level right now, here and overseas.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was that figure, or anything approaching that figure, ever discussed at senior board level or, indeed, at risk committee level?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Were there any special procedures put in place to monitor that level of increased risk, if you like, within the bank?
Mr. Fintan Drury:
I don't think we would have seen the roll-up in that context because of ... for the reasons I've given you in terms of new lending and the nature of development lending and how that works . And I also think that because ... I mean, Deputy Doherty asked me this earlier on, in terms of the small ... the percentage of the loan book that was in ... was ... related to a relatively small number of clients or customers. And that was, you know, that can be argued either way, I guess, but that would have been seen as being, and the ... there would have been seen as an element of protection about that; that it was people we knew well; we knew that they would be able to move the land that they had bought from zoned to full planning and to being built and starting to generate very serious income-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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And do you believe the bank at the time had appropriate levels of information systems in place to monitor that risk?
Mr. Fintan Drury:
I think at the time if somebody had said what are the information systems like, they wouldn't have been as strong as they should have been, or could have been. I think if you look at them ... if you look at the management information systems we had in the bank - and I wouldn't have been, you know, particularly knowledgeable about that in all honesty - but ... I think there would have been ... sorry, if you were to look at them now, the answer to that would be "No".
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Briefly then at the end, the report that was referenced by the Chairman, I think, earlier from the regulator outlining the 30 issues from 2007 ... you would have been, I think ... when did you become chairman of the risk committee? Mid-2007 was it?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, well, I think that was June or July 2007. You've said you weren't aware of it until the documents were presented-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was it not your responsibility as a member of the committee, and, subsequently, as the chairman of the committee, to go searching for such information? I know that executive directors have a particular responsibility, and non-execs, and you've explained and we are familiar with the limitations on the role of non-executive directors. But in light of the fact that you were involved with the risk committee for years, you know, is ignorance of the existence of the letter a defence in that case?
Mr. Fintan Drury:
I think this issue that you've raised is one that actually goes across not just the risk committee and the specific point you've raised, but goes across other engagements by non-executives within the bank over the period of time involved. And I think that sometimes to get the answer to the question, that now seems obvious, you know, what level of engagement have we had with the Financial Regulator? Has the Financial Regulator written to you in the last month, two months, three months? The only was of knowing, of my knowing that such a letter had issued from the Financial Regulator to senior people in Anglo, would have been for me to say at the end of a meeting, "By the way, has the Financial Regulator made contact with you or with any of your colleagues since our last meeting?" And if I was chairing a risk committee today, would I ask such a question intermittently? Absolutely.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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But should you not have done it at the time?
Mr. Fintan Drury:
Well, I mean, if the answer to that question is that I would have then seen the letter I saw when you sent me the documentation, then I wish I did, I wish I had asked that question. But I go back to the central point here, which is that when you are a non-executive director, you engage in a relationship with the executive team in any organisation and, particularly, I believe, in a bank, on the basis of ... that the people who are in there day in, day out, working hard and doing their job, are going to provide you with any information which is relative to and sensitive to the role that you have as, if you like, some form of guardian of the interest of the shareholders and protecting the interest of the company, or the bank. And we know of other scenarios, and I have to be careful in what I say here, and again I would say I find it, you know, somewhat frustrating that I have to be as careful as I have to be. But the situation being what it is, we know of other situations where the non-executives were not informed of information which, to elicit that information they would, on occasion, have had to ask questions that, quite frankly, had they asked them, people would have thought they were bonkers.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Deputy, I'm moving on-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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As a member of this committee, I feel that this ... well, I think many people would feel that these were legitimate questions that you should have asked and you became the chairman of the committee, that's the point-----
Ciarán Lynch (Cork South Central, Labour)
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You're commenting upon a question now ... so, you know, Deputy, we can't be in that space. The question has been made, Mr. Drury has responded. The evidence will be examined at the completion of this committee's work when we move towards our report. Deputy or Senator Sean Barrett.
Sean Barrett (Independent)
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Thank you, and welcome to Mr. Drury. You've referred to the decision to combine the roles of the finance director and the chief risk officer, I think, once as problematic, and actually the first time you said it, it was a mistake. What are your reasons for that point of view today?
Mr. Fintan Drury:
I think partly, Senator, it's hindsight, but only partly. I think that, unlike my answer to the question to Deputy Phelan, I do think that with the wisdom that there was around the board at the time that that decision was taken, there should have been a greater degree of caution, a greater degree of care expressed about the idea that somebody who was the finance director, therefore, overseeing every aspect of the financial management of this organisation, as it was growing, was responsible for a myriad of different tasks; leading the investor relations, but also leading the accounting, leading the audit, all of that - this was his, this is his task - and, obviously, overseeing the drive towards continued growth of the bank, that he would also be charged with the responsibility for overseeing risk. And, as I said in ... and I want to restate, because it would be unfair not to, that is not a reflection on the individual involved who was a very capable person. But those roles should be distinct, in terms of even the optics for an organisation to have somebody who is financial controller, financial director and the chief risk officer, was not the smartest decision, I think, that was made or overseen by the board.
Sean Barrett (Independent)
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And as I'm sure you know on ... on page 17 of Vol. 1, Nyberg and you would be ad idemI think on that. He says:
At this time, Anglo's property-related exposure in Ireland, the UK and the US had grown very significantly, and the need to monitor and manage the attendant complexity and risk had grown proportionately. This decision would suggest that risk management was not appropriately prioritised within the bank.
Sean Barrett (Independent)
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Thank you, and he also says in Vol. 2 at page 47, he says:
[N]either [IA] the internal audit nor the Audit Committee was in a position to challenge credit decisionsper se, where the main problems ultimately arose. The [IA] internal audit role in credit risk was limited mainly to carrying out inspections on processes such as adherence to terms and conditions of loan sanctions, which it duly did.
Sean Barrett (Independent)
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It's page ... sorry it's page 101, there are two numbers there, not to confuse, 101 and it's in Vol. 2.
Sean Barrett (Independent)
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And it's where Nyberg looks at the internal audit function.
Sean Barrett (Independent)
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And, in particular, it's towards the end of the paragraph. That's the section I'm asking you to respond to. Did you think that those defects existed in the-----
Sean Barrett (Independent)
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-----in internal audit and at the bank?
Sean Barrett (Independent)
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Yes. Do you have it now?
Mr. Fintan Drury:
Well, I mean, I think that ... you know, I said earlier on in my evidence that ... or my contribution, that I thought Dr. Nyberg's report had, in large measure, been pretty accurate. I had had the opportunity to meet with him and to be interviewed by him. So I'm not ... you know, there are few enough points that I would take issue with in his report and this would not be one of them because I'm not in a position to have assessed it and looked at it in the way in which he did. What I am merely saying is that at the time it was not something which I would have considered to be in any way a problem.
Sean Barrett (Independent)
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Could I bring you back to Vol. 1 on page 19 if I may? And it will come up on your screen:
Anglo
The Risk function in Anglo was inadequately resourced and did not have the conviction necessary to ensure compliance with credit policy. [...] The Board [therefore] lacked an internal, robust source of risk assessment and external feedback.
He also raised the issue which Deputy John Paul Phelan had as to he's not sure whether the key letters from the Financial Regulator were passed on to either the risk and compliance committee or to the board.
Mr. Fintan Drury:
Well, I don't agree that the risk function was inadequately resourced. And it's important to remind the committee that when I said that in my opening statement I said ... I used the past tense, that I had believed that the risk function was adequately resourced when I was working as a non-executive director of the bank. I don't believe certainly that the risk committee was ... lacked any degree of independence or lacked any degree of capacity to investigate and to push and probe and ask questions of the risk function.
Sean Barrett (Independent)
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Because he says there, "The lack of adherence to good credit standards was manifest with exceptions to policy a frequent occurrence."
Sean Barrett (Independent)
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That's page 19, yes-----
Sean Barrett (Independent)
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It's paragraph 2.9.6 and it's headed Anglo.
Sean Barrett (Independent)
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I think it's come up on the screen.
Mr. Fintan Drury:
Okay. Well, I mean certainly we, you know, the point is already been made that we did not receive ... sorry, I did not see correspondence from our ... anything that was of ... should have been of concern from the Financial Regulator. So the extent to which we lacked an internal, robust source of risk assessment and external feedback is, I think, questionable because the external feedback was something which we did on a very regular basis. I believe this committee must have seen extensive copies of minutes of the risk and compliance committee and of its work and I believe that all of that documentation illustrates or demonstrates the extent to which there was a very intensive assessment of what was going on. It was clearly deficient in some respects, I mean ... there's ... again, I hope I haven't tried to avoid that fact, or come across as I'm avoiding that fact, but it was clearly deficient. But at the time we would have all have felt and considered it to have been extremely robust.
Sean Barrett (Independent)
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Because he's very strong on-----
Sean Barrett (Independent)
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-----"the lack of adherence to good credit standards was manifest with exceptions to policy a frequent occurrence".
Sean Barrett (Independent)
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Where would the ... some of the correspondence from the regulator which he has doubts about, where would that have gone? I mean, I presume would that go to the company secretary or to the chief executive?
Mr. Fintan Drury:
It's an interesting question. And in drawing the example of what had occurred with the regulator in Switzerland, I suppose I was trying to make the point that that initiative, and it was a relative to ... I mean relative to what we're dealing with here it was a relatively small issue, the details of which I don't remember. But the regulator in Switzerland immediately made contact with a non-executive director of the board and elevated it to that point. I think that the letters that we didn't see, or the correspondence - and I presume there's more than one letter but certainly the letter that you shared with me, I hadn't seen before. That letter I would have thought two things. One, when it landed wherever it landed in Anglo it should have been cc'd ... it should have been copied to the risk committee and I would have thought the other observation I'd make is that it should have been in the letter, it should have stated that we expect the board to be made aware of this.
Sean Barrett (Independent)
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I've run out of time but Ireland should emulate Switzerland I think is what you're recommending then, would that be right?
Ciarán Lynch (Cork South Central, Labour)
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Don't be leading, and I'm going to move on. Thank you very much, Senator Susan O'Keeffe.
Sean Barrett (Independent)
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Thank you, Chairman, and thanks Mr. Drury.
Susan O'Keeffe (Labour)
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Thank you Chair. Mr. Drury I'd like to just clarify some facts if I might.
Susan O'Keeffe (Labour)
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You said you'd been the ... you'd given PR advice to Anglo. Were they a client of yours in the '90s and if so for how long?
Mr. Fintan Drury:
Correct. Well, they were a client of the company's, Senator, from, I think, around and I don't know exactly but around '93, '94 and they remained a client after I sold the business in 1999. But I had no ... I would have had no active involvement with the bank between 1999 and 2002.
Susan O'Keeffe (Labour)
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Okay. The first time that you advised Mr. Cowen, was that when he was Minister for Transport in 1993 when you advised him on Aer Lingus?
Susan O'Keeffe (Labour)
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Okay. Again then, when he became the Minister for Health in 1997, did you have the account as your company, did you have the account for the Minister-----
Susan O'Keeffe (Labour)
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-----did you advise him as Minister for Health?
Mr. Fintan Drury:
Yes, we did as a company, we did some work with him when he was Minister for Health. But there wasn't a ... in the same way as there hadn't been with Transport, Energy and Communications, there wasn't an account as such. We were brought in to do that particular piece of work on ... on ... I beg your pardon, on Aer Lingus. And we did a piece of work-----
Susan O'Keeffe (Labour)
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Okay. And again did you advise on flotation of Telecom for the Government at that time?
Susan O'Keeffe (Labour)
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That's fine. Did Seán FitzPatrick invest in your Drury Sports Management business?
Susan O'Keeffe (Labour)
Link to this: Individually | In context | Oireachtas source
Did he invest as Mr. FitzPatrick or as Anglo-----
Susan O'Keeffe (Labour)
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As Mr. FitzPatrick. Was that the first time you had an investment arrangement with him?
Susan O'Keeffe (Labour)
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And then you joined the board in 2002?
Susan O'Keeffe (Labour)
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Okay. How do you know Alan Gray?
Mr. Fintan Drury:
I first met Alan Gray because I did a small amount of speech writing for Brian Cowen on a personal basis and the first time, I think, I met Alan Gray was that ... I don't remember the occasion, but Brian Cowen was delivering some speech and I wanted to get some macroeconomic facts to incorporate into the speech, whatever it was that I was drafting for him at that time, Senator.
Susan O'Keeffe (Labour)
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Was that something that you did routinely, a bit of speech writing for him as his private-----
Susan O'Keeffe (Labour)
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And did you do it as a friend or were you paid?
Susan O'Keeffe (Labour)
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And was that all the way through, Mr. Drury, from 1993 right through, or-----
Mr. Fintan Drury:
Oh no ... sorry, it would have been intermittently, you know, and they were, I liked to convince myself that they were particularly important speeches. They probably weren't but they were set-piece events that occasionally he would ring me and say, "Look, would you be able to ... I'm doing this in a month's time or six weeks' time, would you have time to ... ". And also he would tend to pick things that I might be particularly interested in. So I had a particular interest in the North of Ireland from my time as a journalist, you know-----
Susan O'Keeffe (Labour)
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So he would call you up and say, "Fintan-----
Susan O'Keeffe (Labour)
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Okay. When did you learn about the contracts for difference and Seán Quinn and his involvement-----
Susan O'Keeffe (Labour)
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Do you know when the Financial Regulator was informed about that?
Susan O'Keeffe (Labour)
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So that would have been-----
Susan O'Keeffe (Labour)
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Okay. So that means, therefore, that the authorities knew that in 2007 ... is ... that's .... yes, okay.
Susan O'Keeffe (Labour)
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So why do you think that Seán FitzPatrick, given that he knew the authorities knew ... and, you know, there was a relationship there about this matter, why would Seán FitzPatrick want to speak to Mr. Cowen when he was actually at the other side of the world? At that point.
Ciarán Lynch (Cork South Central, Labour)
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I'm just going to make an intervention there. Mr. Drury cannot answer for Seán FitzPatrick. He can only answer for himself. Okay.
Susan O'Keeffe (Labour)
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The question is whether Seán FitzPatrick-----
Mr. Fintan Drury:
I'm happy to take the question, no problem. I think I said - I hope I said - that when I received the call from Seán to say ... in March 2008, to say that he wanted to speak with Brian Cowen or could I see would Brian Cowen speak with him, it was about the liquidity issue, not ... not specifically about Seán Quinn.
Susan O'Keeffe (Labour)
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Okay. Well, all right.
Susan O'Keeffe (Labour)
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No, no. Yes, okay. Just so you know, in evidence Mr. Cowen said to us that he had returned ... he had had a call, when he was away, and that the overhang of shares in relation to the Quinn issue was raised with him in that call, just so you know.
Susan O'Keeffe (Labour)
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When Mr. Cowen got off the plane, apparently ... Mr. Ahern gave evidence that Mr. Cowen came straight to his house at that point ... when he got off the plane after that visit abroad, he came directly to Mr. Ahern's house. Were you aware of that or were you at that meeting?
Susan O'Keeffe (Labour)
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Were you aware that that meeting had taken place?
Susan O'Keeffe (Labour)
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Okay. And what did you know about that meeting and how did you become aware of it?
Susan O'Keeffe (Labour)
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And what did he tell you?
Susan O'Keeffe (Labour)
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Okay. So you did say ... in your own opening statement this morning, you were actually explaining about the convoluted golfing thing and you said, "Look, I saw him a lot". You meant Mr. Cowen. So, obviously, you saw him a lot because you knew him. What kind of things did you talk to him about? Because this goes to the heart of what we've been talking about. Or are you ... you've just told us you talked about contracts for difference with him.
Ciarán Lynch (Cork South Central, Labour)
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Don't lead the witness.
Susan O'Keeffe (Labour)
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Okay. I'm sorry, I'm not trying to lead. If I've made a mistake, I apologise.
Ciarán Lynch (Cork South Central, Labour)
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No, yes, but don't make the statement, ask a question.
Susan O'Keeffe (Labour)
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I beg your pardon ... I apologise.
Susan O'Keeffe (Labour)
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I beg your pardon ... you said you discussed the meeting between Mr. Cowen and Mr. Ahern. I'm so sorry. Yes, okay.
Mr. Fintan Drury:
I mean, my relationship with Brian Cowen was the same as the kind of relationship I have with some other friends, so ... we talk about ... when we meet ... less regularly, unfortunately, more recently, we meet, we talk about our lives, what's going on in our lives. One of the refreshing things about Brian Cowen, having worked with, as a consultant ... and it's probably important to put it on the record, having worked as a consultant with politicians from Fine Gael and the Labour Party over many years, in just as intense a manner in which I did with Brian Cowen or ... when he was Minister. The relationship with Brian Cowen was such that we ... we talked about everything. We talked about, you know ... except things that were, as far as I was concerned, and he was concerned, off limits. And I've already made that point very clear, I think, to the committee. So the discussions we'd have had would have been about family, would have been about sport. One of the refreshing things about Brian Cowen, he was one of the few people in politics - and I'm conscious of where I am - who was as interested in my life and interested in my work as I was in his. And so it was a very natural, normal relationship.
Susan O'Keeffe (Labour)
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The meeting between Mr. Ahern and Mr. Cowen, was that not off limits, given that that was about-----
Mr. Fintan Drury:
No. Why would that be off limits? He was ... I mean, when I talked about off limits to this committee, it is in the context of my business dealings. And that if I was involved in any business that had ... if I had been on the board of Ryanair, and Brian Cowen was Minister for aviation, Brian Cowen and I would have met and talked about everything and anything but we would not have talked about aviation matters. We would not have talked about Ryanair or Aer Lingus or IAG.
Susan O'Keeffe (Labour)
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Okay, thank you. Can I just take you back, for clarification if I may, to the Druids Glen------
Susan O'Keeffe (Labour)
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-----for the golf ... and you've said what you've said. But what I just want to clarify ... the meeting that you had ... you had a meeting ... you sat down to have a chat or a meeting with an agenda before you went out to play golf, that's correct? Okay.
Susan O'Keeffe (Labour)
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And that was ... was that in the morning or the afternoon or do you recall-----
Mr. Fintan Drury:
It was over lunch, but it was relatively informal in the sense that, as I said, Alan Gray brought an agenda, and Alan being Alan, it was a very, you know, thorough agenda of issues that he wanted and believed that we should discuss. And so when I say it was relatively formal, there was a discussion which went through those agenda items.
Susan O'Keeffe (Labour)
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Okay. And do you recall any of the agenda items, Mr. Drury?
Mr. Fintan Drury:
Yes, there was ... you know, there were discussions about social welfare, there was discussions about the environment, there were ... there was a discussion about, you know, foreign direct investment - standard things that were going to be important, as we saw it, for him in terms of his position as Taoiseach.
Susan O'Keeffe (Labour)
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And do you recall whether Mr. Cowen raised at all the fact that there was a huge tax shortfall, whether the ... unemployment was rising, the-----
Susan O'Keeffe (Labour)
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But the economic activity was at a standstill. Was he-----
Susan O'Keeffe (Labour)
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And can you recall-----
Ciarán Lynch (Cork South Central, Labour)
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Wrap up, Senator, now.
Susan O'Keeffe (Labour)
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I'm finishing, thank you. Can you recall was that meeting ... did you, like, have a little private room where you had the meeting and then go out to play golf?
Susan O'Keeffe (Labour)
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Okay, and finally, Chair, do you remember who ... I mean, obviously there was lunch, there was golf, there was drinks, there was dinner and so on, who finally paid for the event?
Susan O'Keeffe (Labour)
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You don't remember.
Susan O'Keeffe (Labour)
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It wasn't you. But you had pulled everybody together-----
Susan O'Keeffe (Labour)
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-----but you didn't pay for it
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Senator Michael D'Arcy. Senator.
Michael D'Arcy (Fine Gael)
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Thank you, Chairman. Mr. Drury, you're very welcome. The New York Timesarticle "Can one bank-----
Ciarán Lynch (Cork South Central, Labour)
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Phone interference there coming near you, Senator D'Arcy. I know it may not be yourself but someone's phone is interrupting.
Michael D'Arcy (Fine Gael)
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The New York Timesarticle, Mr. Drury, "Can one bank bring down a country?" I'm not sure are you aware of it.
Michael D'Arcy (Fine Gael)
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Do you think it's fair?
Michael D'Arcy (Fine Gael)
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Well, just go with the headline.
Michael D'Arcy (Fine Gael)
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You don't think it is?
Mr. Fintan Drury:
Well, I mean, we're getting into a potential treatise on what happened in terms of the economic failure and, within that, the failure of the banking system. I'm here, as I understood it, to deal with what I know or didn't know, or what I did and didn't do in respect of Anglo Irish Bank. My views on what happened by way of the----
Michael D'Arcy (Fine Gael)
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Okay, we'll move on then.
Michael D'Arcy (Fine Gael)
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Did you participate in the appointment of David Drumm as CEO of Anglo Irish Bank?
Michael D'Arcy (Fine Gael)
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Could you outline your role?
Mr. Fintan Drury:
Sure. I was not a member of the nominations committee and I was asked by Peter Murray, as I recall, who was then chairman, to join the nominations committee for that particular appointment. And I was happy to do so in the sense that I felt that I could add value. I had had a good relationship with most of the senior executives in the bank. I had no particular favourites, if you like, and I also had a view, which I had expressed at board, that the bank should consider outside appointees, which wasn't a view that was, you know, unanimously shared. Some people had that view; others didn't, which is fine. So the approach that we took was ... would stand up to scrutiny anywhere. It was extremely thorough. We had specialist consultants who worked with us on developing and refining the job spec, if you like, who also helped with us in drawing up a provisional list of possible candidates, if we were going to look outside the bank. And over a period of months and a considerable amount of work, we went through a process whereby we assessed all of the possible candidates and made a decision to narrow it down to three, maybe two, and David Drumm won the race. And-----
Michael D'Arcy (Fine Gael)
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And who were the other two?
Michael D'Arcy (Fine Gael)
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Who were the other two?
Michael D'Arcy (Fine Gael)
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Do you think an external candidate would have facilitated Seán FitzPatrick becoming chairman? Or external ... sorry. Sorry, external.
Michael D'Arcy (Fine Gael)
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Should you have thought of it?
Mr. Fintan Drury:
Yes, possibly. I think that the issue didn't arise in the sense, Senator, that we didn't ... we never got to the point of, you know, when we short-listed. There was no external candidate on the shortlist which, personally, I felt - and this isn't, you know, after the fact - I felt probably would have been a good thing that we had such a third party or an external party, rather. So-----
Michael D'Arcy (Fine Gael)
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Was there ever going to be an external candidate considered?
Mr. Fintan Drury:
Oh, yes, it was discussed and I mean, it wasn't just discussed at ... when we ... as I recall, when we reduced the number of candidates to a shortlist, that was discussed at a general board meeting, informally. Obviously, it wasn't a full board meeting because there were no executive directors there, clearly, and what we did was, at that stage, came back to the question of whether or not there should be an external candidate. Personally, I would always have thought it was good. Apart from anything else, that in a process like that, you were, kind of, benchmarking the top people you have in your bank against an external candidate who's from another institution.
Michael D'Arcy (Fine Gael)
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Okay. Can I ask you, Mr. Drury: were you aware of Brian Cowen's or Brian Lenihan's or the Department of Finance's actions prior to the guarantee, in terms of the work that they were doing in case of------
Michael D'Arcy (Fine Gael)
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You weren't aware?
Michael D'Arcy (Fine Gael)
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Were you aware that Brian Lenihan sought advice outside of standard channels?
Michael D'Arcy (Fine Gael)
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Were you aware that Brian Cowen sought external advice on the night of the guarantee with Mr. Alan Gray?
Michael D'Arcy (Fine Gael)
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No. If I could back to the conversation that you organised with Mr. FitzPatrick and Mr. Cowen, there seemed to be an apparatus where you picked up the phone, you spoke to Mr. Cowen. "Will you take a call, Mr. Cowen?" He didn't take the call directly. He then spoke to others to see if it was okay ... appropriate to take the call. That didn't seem to available or was it available or should have been available, when you were organising the golfing outing?
Michael D'Arcy (Fine Gael)
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The Chair, I'm sure, will indulge more of your time. About 20 minutes.
Mr. Fintan Drury:
Because ... and I understand the dynamic of the questioning and why people are taking particular lines and I understand that fully. But I'm concerned that there should be an absolutely clear delineation between what happened a few days after Patrick's Day in March 2008 and what happened in Druids Glen or around Druids Glen. Okay, so you're essentially ... your question is saying, you're putting those two things together and you're saying there was, to use your word or term, an "apparatus", for the first one and there wasn't an "apparatus" for the second one, and should there have been?
Michael D'Arcy (Fine Gael)
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That's what I'm asking.
Mr. Fintan Drury:
No, I understand. The first one was a specific query by the chairman of the bank which I was a non-executive director of, "May I presume to ask you to speak ... can I speak to the Minister for Finance. Will he take my call?" Okay? And I said, "I don't know. What do you want to talk to him about?" And he told me what he wanted to talk him about. I put a call through to Brian Cowen. Brian Cowen did what he did and I believe 100% appropriately so, went through the appropriate channels and said ... and handled it in the manner in which he did. The Druids Glen episode was nothing to do with Anglo Irish Bank ... was nothing to do with anything other than-----
Michael D'Arcy (Fine Gael)
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The majority of people attending were ... had an Anglo Irish Bank link.
Mr. Fintan Drury:
I recognise that. The majority of people there happened to have independent roles, completely separate to Anglo Irish Bank, with the exception of Seán FitzPatrick. The Taoiseach had no links with Anglo Irish Bank, whatsoever. I was a former non-executive director. Alan Gray was a director of the Central Bank and Gary McGann was chief executive of Smurfit Kappa. You are comparing what happened in a very specific instance where I was being asked to perform a duty as a non-executive director and establish whether or not the Minister for Finance would take a call from ... and, in the case of Druid's Glen, that emerged from ... evolved from a discussion that I had had with Brian Cowen which was ,"Your holidays are coming up, you need to ... before you go away, you need to start thinking about macroeconomic issues and can we work together to get a group of people?", and he was-----
Michael D'Arcy (Fine Gael)
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Just, as a point of information, were you asked to make the phone call as a non-executive director or as a pal of Brian Cowen's? Which was it? By Seán Fitzpatrick. Were there other directors who were there?
Michael D'Arcy (Fine Gael)
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Why did Seán FitzPatrick select you?
Michael D'Arcy (Fine Gael)
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But was that the appropriate channel to go through?
Michael D'Arcy (Fine Gael)
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Well, I am asking you and no, you answered a different question. Was it the appropriate channel for Seán FitzPatrick to go through?
Mr. Fintan Drury:
I believe it is perfectly appropriate for ... in a situation like that. I believe today, it is perfectly appropriate in a situation like that for ... if there was a chief executive or a chairman of one of the financial institutions today and he needed or felt he needed to speak promptly with the Minister for Finance and he knew that one member of his board was close to the Minister for Finance and he rang the member in question and said, "Would you see if Michael Noonan will take a call from me?", and if Michael Noonan said,"I need to talk to the Governor of the Central Bank and I will come back to you", and he did what Brian Cowen did, I would have thought as a citizen of this State, that was perfectly and utterly appropriate.
Michael D'Arcy (Fine Gael)
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Did you not compromise the Minister for Finance by making that call?
Michael D'Arcy (Fine Gael)
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Did you not compromise-----
Michael D'Arcy (Fine Gael)
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He phoned the Governor, Governor Hurley, is that correct?
Michael D'Arcy (Fine Gael)
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Am I correct in saying he spoke to the Governor to see was it appropriate?
Michael D'Arcy (Fine Gael)
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Did you not compromise the Minister for Finance by making that phone call?
Ciarán Lynch (Cork South Central, Labour)
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Wrap up?
Michael D'Arcy (Fine Gael)
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No, I have three minutes.
Ciarán Lynch (Cork South Central, Labour)
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All right.
Michael D'Arcy (Fine Gael)
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Three minutes, Chairman. You said you were stopping-----
Ciarán Lynch (Cork South Central, Labour)
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I'll give you a bit of time but I am asking are you moving it towards wrapping up?
Michael D'Arcy (Fine Gael)
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Mr. Drury, the NTMA were very clear and it's been given by former members of the NTMA that they did not wish to place deposits in Anglo Irish Bank. Was that this ... was that matter discussed with the board?
Michael D'Arcy (Fine Gael)
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You have no knowledge.
Michael D'Arcy (Fine Gael)
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You said you were in college with Mr. Cowen.
Michael D'Arcy (Fine Gael)
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Okay. Someone said you were-----
Ciarán Lynch (Cork South Central, Labour)
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We'll give you that one.
Michael D'Arcy (Fine Gael)
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Somebody said you were in college with Mr. Cowen.
Michael D'Arcy (Fine Gael)
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Okay. Were there any other people who you were in contact with on the night of the guarantee or did anybody ask your advice in relation to the guarantee, matters attached to the guarantee or how the matter could have been communicated to the people?
Michael D'Arcy (Fine Gael)
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And when was that?
Mr. Fintan Drury:
Well, it was, you know, it was ... I don't know precisely. I know I was away, so I think it was probably mid, sort of second week of September, I think. And what I did was, because I didn't have a relationship with Brian Lenihan at all, but I contacted Cathy Herbert and I basically handed the request to her as the person appropriate, I felt, to deal with the request. And that was the extent of it. And important to fill out the answer, I did have a phone call in the week of what turned out to be the guarantee, I had a phone call from the chief executive of the bank, of Anglo Irish Bank, and he asked my advice on something and I suggested to him that I couldn't really advise him but I suggested a course of action. And I think the Chairman would understand why I am being somewhat obtuse, which I have tried to avoid. But I suggested a course of action that he should take. I was not aware at all of, you know, anything that was going on in respect of the machinations within Government.
Michael D'Arcy (Fine Gael)
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And just to finish up, Mr. Eugene McCague, who gave evidence here also, was also in college with Mr. Brian Cowen, former Taoiseach. Did you know Mr. McCague in college?
Michael D'Arcy (Fine Gael)
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You got to know him.
Michael D'Arcy (Fine Gael)
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Did you advise Arthur Cox or did you advise him in relation to the role played in ... by his company in the bank guarantee?
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you very much, Senator, I am going to move to wrap things up. Mr. Drury, in doing so, can I just put one question to you myself and then I'll invite the leads in subsequently. Mr. Drury, your testimony of this afternoon would indicate that you were unfamiliar or not aware of the following: key concerns expressed by the Financial Regulator about commercial property lending activities, the levels of exceptions of lending policies, the experience needed to manage a fast-growing monoline bank such as Anglo, broader implications of the rapid growth in lending and profits of Anglo, implications of lending to such a concentrated number of developers, the extent of breaches in regulatory sectoral lending limits, the extent of interest roll-up within the Anglo loan book, the implications of combining the roles of CRO and financial director. Mr. Drumm, or sorry, Mr. Drury, my apologies. Mr. Drury, can I ask you to explain to this committee what role and purpose did you provide for Anglo?
Mr. Fintan Drury:
I was appointed to the board of Anglo Irish Bank in 2002 and one of the reasons why I think I was appointed was because I was a generalist, as opposed to somebody who had, kind of, linear experience or professional experience. And in that context, I feel that I contributed very well as a non-executive director. I was somebody who understood what the bank was trying to achieve, who understood the ambition of the bank, who understood the need to balance growth with control and I think that the issue around my suitability really in some people's minds relates to question of my chairmanship of the risk committee and my role on the risk committee. And I think in that respect, I would say ... make the following points, Chairman. No. 1, when I assumed the position as chairman of the risk committee, I had served five years on the risk committee at that point. So I had a ... a strong understanding of the risk management function, how it worked and how the risk committee worked. I think that the second point is that at that time, I said very clearly to Seán FitzPatrick that I would like the composition of the risk committee to be changed in order that there would be high-quality financial people on the committee with me and in that sense, Ned Sullivan, who had been chairman of the audit committee for four, maybe six years prior to that, he became a member of the risk committee. Noël Harwerth, who was chief operations officer of Citigroup, she became a member of the committee and Lar Bradshaw, who was former managing partner of McKinsey, became a member of the committee. And my job was also, I think, to be seen in the context of I had been chairman of Paddy Power plc for a considerable period of time- almost six years by then. Over that time and Paddy Power you know, may seem like a very different business. But in many respects, the work that a company like Paddy Power does in the gambling industry is very, very significantly layered with risk and the management of risk. And in that respect, my experience as chairman of Paddy Power of the board of Paddy Power overseeing significant growth in the market capitalisation of Paddy Power, overseeing the appointment of a new chief executive, I think made me suited to the position as chairman of the risk committee. I accept fully, the points that you have made in summary, harsh and all as they may appear. What I have been attempting to do in my testimony to your committee, Chairman, is ... is to account for what I could account for. And as I said in my opening remarks, if I cannot give an answer, I will say so.
I do think that the remarks that you have made are unfair in the context of somebody who was chairman and a member of a risk committee and a member of a board of directors who was compromised by the fact that there was a significant amount of information which we ... which was not shared with us. It may not have been significant in terms of the quantum, but it was certainly - and the evidence is there now - it was certainly significant in respect of its import. And I do think that I was equally compromised by the fact that I have had to give evidence today in circumstances where there are acute sensitivities around what I can say about individuals, or even groups of individuals, not naming people. I was told in advance of coming in to give testimony today that I couldn't even talk about "the leadership of the institution". And if that is the case then to-----
Ciarán Lynch (Cork South Central, Labour)
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I'd be mindful now, Mr. Drury.
Ciarán Lynch (Cork South Central, Labour)
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I'd be mindful if you're disclosing-----
Ciarán Lynch (Cork South Central, Labour)
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-----any conversation outside this room, okay?
Mr. Fintan Drury:
No, I'm not. I'm ... I am conscious ... but, in a sense, your interruption makes my point for me, that I have been giving evidence to your committee with the best of intentions and with the most honest perspective I can give you, but you have asked me to give that evidence in a situation where I am significantly compromised about what I can say and what I cannot say. And so I think that the summary is inaccurate and unfair.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you. We move to wrapping things up. Deputy Murphy.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair, and thank you, Mr. Drury. Just a few points for clarification, if I may.
Eoghan Murphy (Dublin South East, Fine Gael)
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There was a loan review process by risk management in 2004. Do you remember that, or do you remember at least from the documentation?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And so in April 2004 Pat Whelan, who is the head of group risk, writes a memo, in which he notes that development exposure has increased from the guideline limit of 15% of the total loan book to about 21%, and there's a need to agree a strategy to reduce the exposure. Was any strategy agreed to reduce the exposure, from your recollection?
Mr. Fintan Drury:
I mean, I'm conscious of how the Chairman has summarised some of my testimony. I ... you know, 2004 is 11 years ago. I saw the document four weeks ago. I'm in ... you know, I'm prohibited from showing the document, sharing the contents of the document, quite correctly, with any third party. I cannot give you - and this may not serve my purposes well in terms of how I will be perceived by members of this committee or by the public - I cannot give you an honest or authoritative answer to that question.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. So then following on from that, in terms of why the warning in the memo might have been ignored or not followed up on, can you recall? Because development ... exposure to development only increased after that period, rather than decreased?
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes?
Eoghan Murphy (Dublin South East, Fine Gael)
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Can you explain why then, why ... given the warning in 2004 ... in fact is ignored, the warning is ignored and the trend goes on, as it has been warned about at that point in time?
Mr. Fintan Drury:
No, I ... other than what I've already said, which is I do think that we ... there was an acknowledgement or a ... there has to be an acknowledgement that the level of ... you know, that weighting between growth and control, which I've referred to, was not ... the balance between those two things was not correct.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Another thing I wanted to clarify, just going back to the Druids Glen outing, does the document, "Building on Achievement", does that ring a bell?
Eoghan Murphy (Dublin South East, Fine Gael)
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In relation to the Druids Glen?
Eoghan Murphy (Dublin South East, Fine Gael)
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You don't recall that being a document that Alan Gray brought and was discussed?
Eoghan Murphy (Dublin South East, Fine Gael)
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For brainstorming?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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But agenda, not a document?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And then just to clarify, before you sat down for dinner there wasn't a brainstorming session at that point?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. And just to remind me again, why exactly did Brian Cowen tell you that he'd spoken to Bertie Ahern after Seán FitzPatrick had spoken to him?
Eoghan Murphy (Dublin South East, Fine Gael)
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Sorry, just what-----
Susan O'Keeffe (Labour)
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Presumably about their meeting.
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes, just to follow on from the evidence with Senator O'Keeffe, is it not the case that you were aware that Brian Cowen had spoken to Bertie Ahern after the March 2008-----
Susan O'Keeffe (Labour)
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Yes. And you said, "Yes".
Susan O'Keeffe (Labour)
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And that ... and you said that Mr. Cowen had told you that?
Susan O'Keeffe (Labour)
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Yes, and he's just following up to know how and-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Why?
Eoghan Murphy (Dublin South East, Fine Gael)
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Sorry-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Brian Cowen-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Brian Cowen had been away.
Eoghan Murphy (Dublin South East, Fine Gael)
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Seán FitzPatrick informed him of the position. Brian Cowen got home, and the first thing he did was went to meet Bertie Ahern. And Brian Cowen told you about that meeting?
Eoghan Murphy (Dublin South East, Fine Gael)
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Right. So why?
Eoghan Murphy (Dublin South East, Fine Gael)
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Just, "I met the Taoiseach"?
Eoghan Murphy (Dublin South East, Fine Gael)
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So, well, why did he tell you then?
Eoghan Murphy (Dublin South East, Fine Gael)
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Yes, sorry, you-----
Ciarán Lynch (Cork South Central, Labour)
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Just wrap up now. Final question.
Eoghan Murphy (Dublin South East, Fine Gael)
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Just a final question then. At the point of your departure from the bank-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----were you aware of the serious problems it was-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----facing in relation to liquidity? No?
Eoghan Murphy (Dublin South East, Fine Gael)
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In relation to liquidity?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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No concerns about the robustness of Anglo bank or it's model at that point, summer of 2008?
Mr. Fintan Drury:
Well, I mean, I think that not only did I not have no concerns about it, but, I mean ... and I do think in terms of my ... and I'm conscious, Chairman, that people want to wrap up, but, you know, again in the context of the summary that you gave of my testimony, I mean, in two thousand ... in November 2008, which was five months after I had finished as a board director, a review was done of the Anglo loan book from top to bottom, and there was ... the view taken by the two directors who conducted that review, and which was independently verified by a firm of outside accountants, was that there was no requirement, that the bank did not ... the bank was in ... was perfectly solvent.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you. Thank you, Chair.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat. If we can go to page 101 in core documents, Vol. 1, this is an extract from the loan review summary document dated 31 May 2007 and talks about risk exposure to unzoned land. Would you be familiar with this document? Would you have seen this document as chair of the risk committee?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, okay. And it talks about that 6% of the exposure is to unzoned land. It's totalling €627 million.
Pearse Doherty (Donegal South West, Sinn Fein)
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And it goes on to say, "However, the bank only lends in these circumstances to long-standing clients who are experienced developers and where the borrower has the ability to achieve zoning." How did the borrowers convince you that they were able to achieve zoning in different parts of the country?
Mr. Fintan Drury:
Well, they wouldn't have convinced me, clearly, because they wouldn't have been engaged with me. I didn't know any of these people at all. But I think that in terms of their convincing of the lending team, they would have convinced them on the basis of their track record, and their track record of being able to move unzoned land to being zoned and, ultimately, to achieving planning permission. That would be the basis on which they would be ... would have been able to convince-----
Pearse Doherty (Donegal South West, Sinn Fein)
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So move unzoned land-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----which is the sole responsibility of local authority members?
Pearse Doherty (Donegal South West, Sinn Fein)
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So they would have convinced the lenders that they had that ability "to move", in your words, "unzoned land"?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, and-----
Pearse Doherty (Donegal South West, Sinn Fein)
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As chair of the risk committee, did you not question this? Like, this was obviously unzoned land, had write-downs of in excess of 90%. Did you not question whether they ... they actually had the ability?
Mr. Fintan Drury:
I think ... I think our focus would have been ... well, we would have questioned, I mean, we wouldn't have questioned the ability of the executives within the bank to determine whether or not the people that they were loaning money to, as a small percentage in this category, whether or not those people had the capacity to do what they said they would do. And then, I'm ... you asked me why would they have ... why would they have accepted or believed that those people were capable of ... of making money, if you like, from, from ownings on unzoned land, it would have been down to the, the individuals who ... who were being loaned the money.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. And, in page 121 we see a map of Ireland and we see that Anglo Irish Bank was exposed to €5.29 billion in, in loans for land in every single county in the Twenty-six Counties. Did this raise a concern to you that there was quite a bit of money being lent for land and unzoned land in, in most of those areas, that we have documents for as well, in, in different parts, where there didn't seem to be a huge demand?
Mr. Fintan Drury:
I think the ... the truth is that, again, I can't remember definitively what would have been said or what would've been discussed in relation to this map. I think the map is interesting. I think the focus on the map, if we had focused on the map - I'm sure we did at some stage within that particular meeting - the focus would have been on where is the bulk of the money being ... being lent to, where is the bulk of the money that's being lent, being invested? And, I think that we would have gained some succour from where the bulk of the money was being invested rather than the ... rather than the reverse. But I, I take the point, looking at it now, that the spread, even, albeit that the ... the bulk of it was in, in parts of the country which were more-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes. Okay. Can you ... can I talk to you about, going back to the issue in, in relation to Druids Glen, and, prior to your evidence it would have been my impression the narrative was that - and the witnesses before us didn't correct that narrative, but weren't questioned on it - that it was a round of golf, dinner and discussions but now it's clear that there was a private meeting prior to that. In, in Mr. Cowen's testimony to this ... to this committee, he referenced a point where he says, "it was out in the open in a foyer of [the] Druids Glen golf club in full public view", we can only assume he was dealing with the second part of it and not the private meeting that we now know happened upstairs or in some room off the foyer, or, or somewhere out there. Can I ask you, in relation to your organisation of that event-----
Pearse Doherty (Donegal South West, Sinn Fein)
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So, and, correct me just where I'm wrong.
Pearse Doherty (Donegal South West, Sinn Fein)
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You organised the event. Brian Cowen was going, and understood he was going, to have a round of golf - how many holes is still questionable - with yourself and Seánie FitzPatrick. You decided to have a private meeting with five individuals, then go for a round of golf, which takes, if it's nine holes, about two hours, and then continue the meeting afterwards, at a later stage over, over dinner or tea. Does it seem as if that's not the best way to organise a meeting? Usually, if I were to do it, I would organise the golf beforehand or afterwards. But, you decided to put the golf, which would leave a number of your participants sitting, waiting for you to come in from the, the ninth hole or the 18th hole, depending how far you got.
Mr. Fintan Drury:
I don't think I brought any particular, kind of, sort of ... I wasn't particularly concerned about the organisational element of it. It was a factor of what was possible. It was ... the principal reason for getting together was to have a discussion around the issues that I've already referenced in answer to, to Senator O'Keeffe's question, the kind of issues that, that Alan Gray had tabled in, in the agenda of items that we wanted to cover. That was the principal purpose ... was, however people may view the individuals who had been gathered, and whatever perception people may have those ... have of those individuals, the, the intention was that the Taoiseach would be able to draw down on their views, their expertise, across a number of key issues facing him, in terms of the economy at that point. And, the game of golf was very much a, kind of ... I wouldn't say an afterthought, because it was all stitched together, but the game of golf was purely to get him out for a bit of fresh air, and then we would reconvene over dinner. It didn't ... it didn't discommode those who weren't golfers, because they went away for a few hours and did something. And they knew in advance that was ... what was happening. So, I'm not really sure that I can enlighten you any further, other than what I've said already, in respect of this, now infamous, event.
Pearse Doherty (Donegal South West, Sinn Fein)
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And did you ... did you inform Mr. Cowen that Seánie FitzPatrick would be the participant on the golf course, and ... on that, before the event?
Pearse Doherty (Donegal South West, Sinn Fein)
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And, and the last question is this, is it in relation to following up just from Senator O'Keeffe's ... the former Taoiseach, Bertie Ahern, gave evidence to this inquiry in relation to the former Taoiseach, Brian Cowen, coming from the airport, directly to his house. He gave evidence saying that he was concerned in relation to what was happening in Anglo, that they discussed it, and both of them were concerned. You've given evidence to say that he discussed that meeting but yet, the events that the Taoiseach has outlined to the meeting were not recalled to you, it was something-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----tangential or, or something of, of that nature. Was ... is that the case?
Mr. Fintan Drury:
First of all, in answering Senator O'Keeffe, I gave a very truthful, instant reaction, to a question which was, "Did he tell you he had gone to Bertie Ahern's house?" Yes, he did. "Did he discuss with you what was discussed?" Yes, he did. I did not know, until you've just said what you said, Deputy, what Bertie Ahern's account was of what Brian Cowen and he had discussed on that ... at that meeting. I was not at that meeting. When I spoke to Brian Cowen, Brian Cowen spoke with me and told me that he had met with Bertie Ahern at his house, and what had been discussed. That was never referenced. The first I heard of it, truthfully ... and if I had heard Bertie Ahern's testimony, and I was saying everything I have said so far to this committee today, I couldn't have said, as, as I did, to Deputy ... I beg your pardon, to Senator O'Keeffe, that, you know, Brian Cowen told me what they had discussed. In other words, what I am saying to you, as, as clearly as I can, is that, in my conversation with Brian Cowen about what he had discussed with Bertie Ahern on that particular evening or day, there was absolutely no reference to the things that you have said Bertie Ahern gave in testimony to this committee. None whatsoever. Now, I ... or, I'm not saying that, that what Bertie Ahern said to this committee isn't a truthful account of what, what occurred or what they discussed, I don't ... the only two people who can answer that question are Bertie Ahern and Brian Cowen, but I can tell you, when Brian Cowen spoke to me he never referenced anything to do with what you've just said Bertie Ahern said, if you follow me.
Ciarán Lynch (Cork South Central, Labour)
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Thank you. I'm going to bring matters to a conclusion. Just before I do I just want to give members just a heads up for a very, very short private session that may assist moving things on more rapidly this evening, if they're ... just for, if they stay ... if we go straight into private session after we end this session. But, I just want to end this session by asking Mr. Drumm is there anything ... or, excuse me, my apologies. I'm getting tired and my apologies.
Ciarán Lynch (Cork South Central, Labour)
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I know, my apologies. I call people by ... my apologies. I just ... I want to bring things to an end, Mr. Drury, this evening, and I want to invite you in to make any final comment that you can make this ... excuse me, that you want to make by means of closing.
Ciarán Lynch (Cork South Central, Labour)
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Pardon?
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. With that said, thank you very much, Mr. Drury. I'd like to thank you for your participation today and for your engagement with the inquiry. You are now excused. I propose that we go straight into a private session and clear the Gallery.
Ciarán Lynch (Cork South Central, Labour)
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The Committee of Inquiry into the Banking Crisis is now resuming in public session and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off. Today, we will focus of the ... or, the focus of the inquiry is on Anglo Irish Bank and IBRC and at this evening's session we will here from Mr. Alan Dukes, former chairman of Anglo and IBRC, and Mr. Mike Aynsley, former chief executive of Anglo-IBRC.
Mr. Alan Dukes was a chairman of IBRC from July 2010 to February 2013, having previously been a public interest director from November 2008 to June 2010. Mr. Dukes is a former leader of Fine Gael and a Government Minister. He was also a former DG of the IEA and chair of the Asia Matters economics institute. Mr. Dukes, you're very welcome before the inquiry this evening.
Mr. Aynsley was chief executive officer at Anglo-IBRC from September 2009 to February 2013. Mr. Aynsley also held a number of senior positions in the financial services and consulting industries over the last 30 years. During his time he has worked with Deloitte Consulting, ANZ Banking Group, National Bank of New Zealand and Security Pacific National Bank Group. And, Mr. Aynsley, you're also welcome before the committee this evening. And, in doing so, if I can maybe just acknowledge your co-operation and assistance with helping the committee with its schedule this evening and our apologies for the delay caused earlier to you.
If I can move onto the formalities, before hearing from the witness, I wish to advise the witness that by virtue ... or, the witnesses ... by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right and members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.
The witnesses have been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. So if I can now ask the clerk to administer the oath to both Mr. Dukes and Mr. Aynsley please.
Ciarán Lynch (Cork South Central, Labour)
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Once again, Mr. Aynsley and Mr. Dukes, thank you for coming before the inquiry. And if I can invite you to make your opening remarks and, Mr. Dukes, if I can invite you first.
Mr. Alan Dukes:
Go raibh maith agat, a Chathaoirligh, agus tá an-áthas orm an deis a bheith agam cabhrú le h-obair an chomhcoiste fíosrúcháin seo.
I intend to deal with some general issues before going into more specific areas, Chairman.
The combination of financial and fiscal crisis that hit Ireland in 2007-2008 was totally unprecedented in modern Irish history. The Irish Government, the Administration and the regulatory systems did not have the tools that were required to deal with the combination of circumstances and problems that faced them. Prior to September 2008, there had been discussions about the nature of a possible bank guarantee and a framework of draft legislation for bank nationalisation had been prepared. There was no legislative provision for a bank resolution system until the Credit Institutions (Stabilisation) Act of 2010. Apart from the credit institutions winding-up directive of 2001, no bank resolution system was in place in the eurozone. The eurozone implemented the single supervisory mechanism in 2013 and the single resolution mechanism, which is intended to deal with future bank resolution requirements, will come into effect at the beginning of next year. Prior to the Irish bank guarantee in September of 2008, the UK had dealt with the Northern Rock and the Bradford and Bingley cases. The Irish Government, prior to that, had gone through a dispute with the German Government on the question of which of them had responsibility for the Depfa affair. That was resolved by the German Government having to take responsibility for it.
Ireland was the first eurozone member to find itself obliged to take action. And I think it's fair to say that any action in an area like this by a first mover was bound to be controversial and, indeed, by definition, unprecedented. Other countries followed. Germany had to take action about Landesbanks, an issue that is still the subject of ongoing work in Germany. France, Belgium and the Netherlands had to take joint action to deal with the problem in Fortis bank. Spain, Portugal, Italy, Greece and Cyprus all had to take action and Latvia found itself obliged to take action in this area, in fact before it joined the eurozone. Of the early movers, I think its fair to say that the action taken by Ireland was the most comprehensive of any. Indeed, I think it was probably to our disadvantage that the Irish Government at the time made it very clear that it was dealing with the whole banking system. Other countries took action that was virtually as wide in its effect but they didn't have to say they were dealing with their whole banking system.
Retrospectively, it has been suggested that once the burning of bondholders was ruled out, the options available to the Government in September of 2008 were, first, a blanket guarantee, accompanied by nationalisation of the entire banking system; or a blanket guarantee, accompanied by the liquidation of Anglo Irish Bank; or a blanket guarantee, accompanied by the nationalisation of Anglo Irish Bank; or, the liquidation of Anglo, accompanied by what's been described as a "political guarantee" for the rest of the system. In the event, the course of action that was adopted was a blanket guarantee, followed shortly afterwards - within a few months - by the nationalisation of Anglo and AIB and a partial nationalisation of the Bank of Ireland.
The evidence available is to the effect that the European Central Bank, some eurozone partners and some US authorities, made it clear that repudiation of bondholders would have serious, if unspecified, negative consequences. Relatively little attention has been paid to the fact that the repudiation of senior bondholders would, as a result of the pari passutreatment convention, have had very serious repercussions for depositors with deposits of over €100,000. These repercussions would have affected individual depositors, corporate depositors and other banks - both Irish and non-Irish banks. In his evidence to this committee on the 15th of this month, Mr. Paul Gallagher, who was Attorney General at the time, said of the relative positions of depositors and senior bondholders, and I quote, "The law at that stage was that they ranked equally".
Liquidation of Anglo in September 2008 would have had, I think, the following consequences,inter alia: first, a draw on Government funds to cover the €100,000 deposit guarantee - Anglo was largely illiquid at the time - or measures to move the Anglo deposit book to another institution, which would have been a fairly complex exercise. It was done later and it wasn't a simple exercise to carry out. Other consequences would have been litigation issues arising from the absence of banking resolution legislation at the time. And the need for some type of vehicle to realise the banks assets in order to avoid the contagion effects on other banks of calling in outstanding loans on the Anglo books, including many cases where borrowers from Anglo were also borrowers from other banks in the system. NAMA didn't exist at the time, and I think it's fairly clear that any transfer of the loan book of Anglo to any other institution would immediately have spread the contagion to those other institutions. On the face of it, that would have been a much more complicated procedure than the one actually adopted. Again, in evidence given on the 15th of this month by Paul Gallagher, we find the statement that at the time, "It was quite clear to everybody that you couldn't take the risk of winding down a bank, in whatever fashion."
Liquidation of Anglo would, in my view, have cast very serious doubt on any political guarantee that might have been ... that might have accompanied it, particularly given the fact that the liquidation of Anglo would have required ... would have inevitably had a contagion effects on the other banks. And I think if there's need for any further illustration of the difficulties that would have accompanied a liquidation of Anglo at the time, I think we just have to look at what's happened since February of 2013. In that liquidation, which involved a very much smaller outstanding volume of loans - I think about €15 billion net - two and a half years later, the process has still not concluded. And that's not in any sense a criticism of the liquidators; I'm sure they're doing as much as they can. But I think that gives some indication ... a small indication of what the difficulties would have been of a liquidation in 2008. I have to say that, having listened, debated, worked over the period since September 2008 up to date, that had I been in the position of the Government of the day at the time, with the knowledge, or the lack of knowledge that they have, I don't think I would have done anything very different.
By the time that I was appointed to the board of Anglo Irish Bank in November 2008, that bank, and the other Irish banks, had greatly exceeded every prudential limit in terms of the concentration of lending by sector and by client. It was very clear that they had already, at that stage, found themselves in a very, very high risk position. This had happened under the noses of the regulators, who had access to all the information required to arrive at that conclusion. I don't know whether the failure to appreciate this can be ascribed to role confusion in the then bicephalous regulatory structure, or through any lack of capacity. Immediately after nationalisation, the Anglo board ... the new Anglo board set in train a detailed review of the banks provisioning policy. We commissioned an independent external review of the methodology, and, on 15 April 2009, we informed the Department of Finance that the recapitalisation requirement at that point was in excess of €4 billion, rather than the €1.5 billion that the Department had in mind at that point, with a very substantial downside risk from any further deterioration in property prices. And I don't think I need to remind the committee that property prices had been falling from some point in 2007. That fall actually accelerated very substantially in January 2009 and from then out. So, in mid-April of 2009, we informed the Department of Finance that the recapitalisation requirement for Anglo, as it was at the time, was in the region of €4 billion, with, as I say, a very substantial downside risk from further deterioration in property prices.
That was clearly unwelcome news which also had substantial implications for the other guaranteed institutions. When we conveyed that the Department of Finance itself commissioned a separate study, to the best of my recollection by PwC, and that came to a conclusion broadly similar to the one that we had arrived at in Anglo. I have to confess, a Chathaoirligh, that I was a little taken aback to hear the second secretary of the Department of Finance say recently in the course of her evidence to this committee, "Anglo surprised on the downside every time you looked at it." The Department should not have been surprised since a very clear warning had been given in April of 2009. I don't know whether the warning was understood or not.
Were the banks, including Anglo, insolvent in September of 2008? That has been a question that has exercised minds. I frankly don't know what the answer to it is, but my guess is that if the exercise had been carried out at the point when the guarantee was given, that Anglo would probably have proven to be solvent at the time on the basis of what was known, and the other banks I think would certainly have been. That situation changed, it deteriorated as I've said, very rapidly over 2009 and continued to deteriorate for some time after that.
The then Minister, the late Brian Lenihan TD, came to the view early in 2009 that the staff resources in the Department of Finance were inadequate to deal with the issues facing it and personnel were drafted in from the National Treasury Management Agency. I have to say, a Chathaoirligh, that that body's very considerable expertise lies in treasury management, not in securing repayment from borrowers, which is a different function. Difficulties inevitably followed when staff of the Department, of the NTMA came to deal with issues of bank restructuring and dealing with externally recruited persons who had specific skills and a lot of experience in the area of restructuring.
The then head of banking in the Department of Finance proposed to me in 2011 that Anglo should be run, "as a subsidiary of the Department of Finance". That proposal was a non-starter in terms of governance and prudence but unfortunately the bank's rejection of that negatively influenced the relationship with the Department. And that problem was further compounded by the bank's later rejection of a suggestion made in a report commissioned by the Department of Finance from McKinsey's, a suggestion that the functions of chief financial officer and chief risk officer be combined. The combination of those two functions in the bank in 2007 was identified by the Nyberg report as one of the deficiencies in the bank's structure and risk management system - and the committee had some discussions with a previous witness this afternoon on that issue.
Notwithstanding all of that rejection of that proposal - which we regarded as very, extremely unwise - the rejection of that proposal by the bank was seen by the Department of Finance as yet another example of obduracy on the part of the bank. I have to say that a difficulty that continued throughout that period arose from what seemed to me to be an entirely inadequate appreciation by the Department of Finance of the role and obligations of the bank as a separate company set up by statute with all the duties that that implies under company law, and the duties and obligations of a regulated entity. It was required, and this was indeed acknowledged, in the first relationship framework to operate at arm's length from the Minister for Finance for very solid prudential reasons. And as I point out in the statement I submitted to the committee, I take issue with the current second secretary of the Department of Finance who observed to the Public Accounts Committee that that arm's-length requirement changed in some way when the bank was put into wind-down mode in 2011. To my mind, and to our minds jointly in the board of management of the bank, the wind-down mode did not in any way affect the necessity for the arm's-length relationship for the prudential protection of the Minister and of the State.
On a more general note, I have to say that since the onset of this crisis both the Eurogroup and the European Union authorities have been, I must say politely, dilatory in their approach to all of this and have only gradually recognised and attempted to get to grips with the flaws of the architecture of EMU. I think that's well illustrated by the fact that the crisis really began in 2007, the single supervisory mechanism came into effect at the beginning of 2014. I think that's an extremely slow pace of reaction to one of the most difficult crises we've had to deal with.
Having said that, I believe that against this very difficult and confused background, the Irish authorities have dealt extremely well with the macro-level consequences of the 2008 bank guarantee and the challenges of resolving highly distressed bank assets. And in that regard, I think NAMA has performed extremely well, and indeed the performance of all of the banks in dealing with the greater part of the distressed assets has, I think, been rather good. I'm not sure that I would have the same level of comfort about their mortgage books but that's perhaps something we could get into at a later stage. Apart from the Central Bank, it's my belief that the authorities here did not have the skills to micro-manage banks and should not have attempted to do so in any case. And I have to say that the Department of Finance frequently seemed to adopt a defensive and hostile approach to outsiders who were recruited for their specific skills that they brought in. Following the liquidation of IBRC in February of 2013, the directors produced a statement of affairs as required by the legislation. This showed that, on the basis of the balance sheet, and the support measures in place up to the moment of liquidation, the bank was solvent. The joint special liquidators are reported to believe, or to expect that on completion of their functions, there will be a surplus of something in excess of €1 billion for distribution to unsecured creditors. The Governor of the Central Bank forecast that that institution will make an appreciable profit of several billion euro from its participation in the funding and the payment flows associated with the bank bailout process, much of which, of course, was associated with operations concerning Anglo and IBRC, and NAMA expects to return a surplus at the end of its operations.
The combined effect of those factors will produce a useful mitigation of what will still be a very large final cost to the State, of the banking crisis. Together with my colleagues of the board of management of IBRC, I'm happy to have been able to contribute constructively to the mitigation of that cost. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Thank you, Mr. Dukes. Mr. Aynsley, if I can invite you to make your opening remarks.
Mr. Mike Aynsley:
Thank you, Chairman, and thank you members of the joint committee. As you know, I came to Ireland in September '09. I definitely had the view when I arrived, based on what I'd been told and what was available publicly, that there was a big job to be done here. I had no idea that it would quickly become known as the most toxic bank in Europe. By the time of my arrival of course, the decision to establish NAMA had been made and you will recall that there was a number of 20%, in about mid-2009, being referred to as the likely NAMA haircut estimate across the industry. I've been involved in difficult situations previously, I knew that this was likely to be a light number. I knew that the full extent of the falling markets was not at that stage apparent, and we would see further deterioration, but I didn't expect the free-fall to continue as it did. By the end of 2009, the haircut was estimated at around 30% and, of course, right through 2010 it increased dramatically to the point where by the time all of the calculations were done, the industry average was around 58%.
For Anglo Irish Bank, this was devastating, as it was for the rest of the industry. It produced a loss on transfer of assets to NAMA of €21 billion. And that €21 billion loss on NAMA assets, that was a 62% haircut on €33.9 billion of assets eventually transferred. Of course, that 72% of the overall €29.3 billion of State funding required to support Anglo and that's ... it's interesting to contrast that €29.3 with the original €1.5 estimate, just prior to the point of nationalisation. Now, of course, the loans that remained in the banks, they were a mix of good loans but also of distressed and non-performing loans that didn't qualify for transfers. So, the difference ... the other €8.3 billion of money that went in, went to offset provisions on those loans and also to recapitalise the bank ... put it in a position to maintain its regulatory capital thresholds.
Internally, what I expected to find at the bank was the requirement to fundamentally restructure the organisation. I knew that that would be necessary, given past experience I'd had. I knew that there had been a substantial dislocation in the markets and that that pointed to a long period of uncertainty and that there would be a need for very, very careful management of the distressed loan portfolio. While the extent of the downturn was still very uncertain at that point, it seemed crystal clear that it wasn't just a cyclical aberration in markets; it was a structural change, and that was driven, primarily, by the global financial crisis and the collapse of the global funding markets.
So the business at Anglo needed to be restructured. People there were focused on growing and lending and the mindset of the lending banker needed to be changed. It needed to be changed quickly and it needed to be changed to, what you could refer to, as the mindset of a restructuring banker rather than a lending banker. We assembled a management team, which, I think, collectively was capable of addressing any issue that was put before it in the bank. The Minister for Finance, at the time, the late Brian Lenihan, specifically requested that the senior people hired should be unblemished and not have been associated with the Irish banking scene or involved in any way in the global financial crisis. The new team included specialists in corporate finance, debt restructuring and insolvency, as well as debt capital markets, balance sheet and capital management, enterprise risk management, corporate governance, finance, legal compliance and control in an environment wherein the management capacity and the mix assembled was equally applicable to a bank in full wind-down as it was to a bank going through a major restructure.
The work to transform Anglo-INBS - on merger, IBRC - into a fit-for-purpose vehicle was extensive and required essentially a rebuild of, not only the client relationship management functions, but also the governance risk management and control activities from the ground up. This had to be a progressive process, as markets were deteriorating rapidly and due attention to the immediate loan portfolio problems was critical. It was a difficult process, as the loan book at Anglo was characterised by a lack of thorough management information, poorly perfected security - in some cases, absent - and a need to retain and supplement the management teams themselves. Timeframes set by commitments to the European Commission needed to be respected and progress was desirable in the identification of management of a significant number of legacy issues. In both my main and supplementary statements to the inquiry, I've referred to a number of times to difficult aspects of the interaction between the bank and the Department over the period from nationalisation to liquidation. I remain of the view that most of the conflicts could have been avoided if there was a better understanding in the Department of the constraints the bank was under in complying with the various requirements it was subject to and the legal and prudential need for the bank to act independently. The bank was governed by the Anglo Act and as well as an associated relationship framework that required ongoing separation from the Minister and his nominees. In conducting interactions, there were often complex considerations required across multiple dimensions. These included, not only the regulatory obligations, but many others in managing the ordinary course of business, which referenced many possible overlapping areas such as the public interest dimension, the management of legacy issues, the management of stressed loans, the management of very large exposures, as well as the number of other relevant legal considerations.
Importantly, the bank needed to be on top of all associated technical and commercial aspects and be aware of any potential dangers involved to both the bank and the Minister should the separation not be respected. Unfortunately, this ran against the grain of what became the preferred position of the Department from March 2011-----
Ciarán Lynch (Cork South Central, Labour)
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Your papers are up against the microphone there, Mr. Aynsley, so it's creating ... that's grand. Excellent, thank you very much.
Mr. Mike Aynsley:
Unfortunately, this ran against the grain of what became the preferred position of the Department from March 2011 onwards of a more directive relationship based on a high degree of integration with the Department.
Notwithstanding the change in tack by the Department, the bank made significant progress against its targets by all measures. This included management through a period of unprecedented market turmoil whilst dealing with multiple high-profile legacy issues. It included building a new leadership team and driving significant changes in the broader organisation, including overhauling of risk functions and establishing new governance and control processes. It included conducting a thorough due diligence of NAMA bound and post-NAMA loan portfolios to identify the true quality and value of the underlying assets, establishing asset and loan recovery strategies and setting up specialist work-out units to proactively resolve distressed loans, maximise recovery and, where appropriate, restructuring loans so as strengthen and improve asset quality.
The bank was also involved in supporting the Irish authorities' and the international authorities' broader restructuring of the bank and the Irish banking landscape. This work was central to the task of working through multiple alternative paths which ultimately led to the ... Anglo and INBS being placed into wind down. And, of course, we have successfully ... we have successfully executed the acquisition of INBS and downsized the total asset portfolios from pre ... pre-crisis highs of over €100 billion plus to some ... in total assets to a point where the net loan levels were around the €15 billion mark at the point of special liquidation. This included the sale of the substantial US-based loan portfolio in what was the largest single open market sale in the USA since the collapse of Lehman Brothers.
In summary, I feel fortunate to have worked in Ireland during the challenging period and to have been associated with a world-class team consisting of a very talented ... board and management team. If I have any immediate concern about what went on during the period, it is simply that I'm not certain that all valuable lessons have being learned with regard to the need to separate banking policy and operations functions within the State. My experience with the Department of Finance makes me worry that it is likely that the Department will not only continue to direct banking policy but also look to take an active role in directing operations and the regulatory function. In part, this approach was a significant contributor to the breakdown of the banking sector in Ireland.
As Ireland continues to move forward in its recovery, I wish it well and hope the outcomes of this banking inquiry and the very important work you're doing can productively be used to safeguard the sustainability of the financial sector for the future. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Aynsley. And we'll commence questioning now so if I can invite Deputy John Paul Phelan, please. Deputy, you have 15 minutes.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you, Chairman, and good evening, gentlemen, and welcome. Sorry for holding you up. We only have 15 minutes so I ... I'd encourage you to be as brief maybe in your responses as you can. I'll try and be as brief as I can in asking the questions. A gentle one first, Mr. Aynsley, for you. In your opinion, what were the main weaknesses in the Anglo business model ... in the years prior ... prior to nationalisation ... particular reference to corporate governance, maybe, and to the ... the overall business structure.
Mr. Mike Aynsley:
Yes, there were many. The ... at the ... at the board governance level ... I ... I think the board governance level was weak. One of the aspects that was brought to my attention early on was the fact that there were sometimes two board meetings with ... small number of board members meeting and deciding on things and then having a larger group meeting and ... and pushing things through. The committee structures I don't think worked as effectively as they could have. There were a small number of people in the organisation responsible for very large decisions.
The reporting frameworks I don't think were particularly detailed or complex and certainly not framed, in my view, in a way that properly informed the board of the risks and the activities that were being undertaken in the bank. Risk management, I think, seemed to be a process that the organisation went through just simply to say that they'd gone through a process to approve lending transactions and ... I sort of recall one of my first meetings with the chief risk officer at the time of my arrival. He was an incumbent chief risk officer who had been at the bank for many years and he'd been at the front end of the lending business. And he described it as a role that he was put in because he started to question some of the transactions that were being done and they sort of banished him to the risk area where in, in his words, he was classed as a second-class citizen. So, you know, I think the ... the governance and the risk management and controls would be the key ones ... but it also gets down to just the embedded culture at the front end of the business and the thoughts that ... thought processes and mindset of the people going out and doing transactions.
Another good example, and of course a ... a foreigner coming to town, particularly an Australian coming to down ... to town, the local Australian embassy here ... I am here and they invite me out there one night. So the first ... first night I went out there for a dinner, there's a whole group of people. I ... I don't know anyone there, and this fellow came up to me, who will remain unnamed, and he says, "I love Anglo." He said, "I'm glad you're here." An Aussie. "I just love Anglo." So I ... okay ... talk to me, and he said, "You know, I've been buying properties, investing in properties, for a long time". And he said, "I don't know how they found out about it but I was at an auction one morning and a fellow came up and he handed me an envelope, and it was an Anglo Irish Bank envelope, and I opened it up, and there was a cheque inside, which represented slightly more than what the deposit would be and it says ... a note attached saying, 'Just in case you need the deposit'.". So, you know, this is the mindset at the time. It was to go out there at all costs, find ways to go out there and grow the loan book and lend.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. I can empathise, maybe, with ... you're ... you've an Australian coming ... I've many ... family there myself. I want to ask, in relation to your statement, you're very critical of the Government, the Department of Finance and, in particular, JM, who I presume is Mr. Moran, John Moran. Did your relationship deteriorate to such a degree that - and I think, actually, you said it in your statement, it will leave "a bad taste in [your] mouth for some years to come", I think was the phrase - that you ever considered your position in your time as chief executive?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Did it deteriorate to such a point that you considered ... you considered your position or, maybe, even to put it the other way, did it deteriorate to such an extent that you regretted arriving on these shores in the first place?
Mr. Mike Aynsley:
Oh, look, I, I mean, you know, I think I, I've been in financial markets a long time. I don't sort of tend to put myself in a position where I regret things. This was ... this was difficult. I mean, you know, it was ... it was a situation that ... that deteriorated rapidly. You know, the country was in a lot of trouble and, you know, I sort of took the view that I was just going to work through it but, you know, I have to say, you know, at times I ... I would get fed up with it. I would have said to the chairman, you know, "Chairman, tell me, do you want me to stay around?" You know? But, you know, I think ... I didn't really get to the point where I ... I was going to pack my bags and go but-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you. I want to turn, because time is moving on, to Mr. Dukes and a couple of questions that I wish to ask him also. Could I ask you, Mr. Dukes, could you briefly describe the prevailing culture again that you encountered when you were first appointed as a public interest director on the board of Anglo in December or, I think you said, November 2008?
Mr. Alan Dukes:
Yes, well, I have to say that the prevailing culture didn't prevail for very long because very shortly after I was appointed, the chairman or the chief executive resigned and shortly after that, the bank was nationalised.
All of the previous board resigned with the exception of one who became the executive chairman. He'd been on the board for only a short time before that.
Looking back over the picture as it was then, a few things struck me very, very forcibly in addition to what Mike Aynsley has said. Anglo developed a reputation. I knew Anglo when it was a very young bank. I had some dealings with them and it was a business bank and it struck me as being a very progressive and active outfit doing business lending. It went into property then, as you know, in a large way. It was successful and grew rapidly in the property sector in Ireland and looking at it from the outside, it seemed to me they had decided to diversify so they went and got into the property sector in the UK and grew very rapidly. Then they decided again to diversify and they went and did the same thing in the United States. So here we had a bank that was rapidly becoming a monoline with the same kind of risk in three jurisdictions. Now I know they had some other operations in Austria and in Germany but they weren't hugely material in terms of the total.
So there was a very great concentration of risk there. It developed, and they were very proud of it, I think, this kind of system of what they called relationship banking, which was that, and this was part of their picture, they knew their clients very well, they could rely on a relationship with their clients and they knew their clients well enough to know when they could be confident that this was a good loan or this other one wasn't, which resulted in a situation where, as was explained this afternoon at one point, 6% of the loan book constituted loans for land in Ireland on which there was no zoning. Now that to me indicated much more than a prudent appetite for risk and it indicated a failure to appreciate the dangers of the kind of concentration that they had. That was a concentration by sector and then when after ... immediately after nationalisation, we began to look through the loan book and tried to figure out what relationship banking was all about, it became apparent very quickly, and I have dealt with this in my statement, that it took quite a lot of time to find out just where the exposures were or what the level of exposure was to given borrowers. You would find a case where a given borrower ... there was a large exposure to the person in a particular project and then you'd find if you followed the threads through, there were other exposures to the same borrower and in fact-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Mr. Dukes, I am sorry now ... I just have to cut you because you're ... I'm down to five minutes and I've a whole heap more of questions that I wish to ask you. But I think I've got a flavour from what your answer ... I'm not trying to-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Yes ... well, I-----
Ciarán Lynch (Cork South Central, Labour)
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Other members might touch upon the cultural aspects as well as-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Briefly, also, I just wanted to ask you ... you weren't as forthcoming, at least in your original written statement, about the nature of relationships that existed from your time with the Department and the regulator. Can you elaborate and be as brief as you can? We're down under five minutes.
Ciarán Lynch (Cork South Central, Labour)
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I will give you time. I will give you time, Mr. Dukes. I appreciate where the Deputy is coming from but questions need to be answered coherently.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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The ... that nature of that ... those relationships-----
Mr. Alan Dukes:
The problem was, as I've said, and it ... this is an understandable kind of problem, the Government decided that it would take a certain course of action with the bank. They nationalised it, which I think was a rational thing to do. And we had a relationship framework that was drawn up and it set out the concern of separation of the bank, which was a risky operation, from the State, which wanted to avoid risk to the extent that it could. And having done that, the Government decided they didn't trust the people that they had entrusted with this job of doing it. And that then was compounded by the fact that two key proposals were made to the bank at different times, one about the head of banking in the Department of Finance being on the board who would, in my view, have been seriously conflicted, and it did not seem to me that that was in any way a runner ... that was badly ... the rejection of that was badly received.
And then the other point ... at a later stage, where it was suggested, on the basis of a report which was not shared with the bank ... we never saw that McKinsey report but one recommendation from it was to recombine the functions of chief financial officer and chief risk officer in a very risky bank where we were very concerned about protecting the State from the consequences of a default on the part of the bank or a cessation of business where it was absolutely the wrong thing to do - to mix the risk function with the finance function.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Mr. Alan Dukes:
And that had been clearly demonstrated in the previous life of Anglo. Now, we resisted those two proposals and we were regarded as being stubborn, obdurate, unresponsive in doing that, where we felt we were doing the job we were properly charged to do and that was, maximise return for the State and keep the risk down as far as possible. So, I mean, that, kind of ... current. Now, I have to say that if you look at the relationship framework ... the two versions - the first one we had in 2009 and the second one that was there in 2012 - if you parse and analyse through those, the relationship framework say this should be operated at arm's length from the Minister, except where the Minister decides to do it otherwise. And there was always a conflict there, so there was always going to be unease in that relationship. And, finally, I know you want to be brief, I have to say - and I say this in all sincerity - I watched the evidence given to this committee by the current second secretary of the Department of Finance and if she and other officials in the Department of Finance had been as forthcoming with us about their state of mind through those years as they were with this committee, we wouldn't have had half the difficulties we actually had.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can I ask you, then, in my last minute or two, how did your appointment come about initially as a public interest director in Anglo?
Mr. Alan Dukes:
The guarantee was given in September 2008. The Minister announced a short time afterwards that he was going to appoint two public interest directors to the boards of each of the banks and he was going to nominate those persons. I met the Minister by chance one day in ... in Leinster House. I'd known him for quite some time and we had a good relationship and he asked me if I would agree to be considered as one of those 12 people. And it seemed to me that that was a useful kind of a thing to do and I said, "Yes".
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Mr. Alan Dukes:
He published a list some time later and then I got a phone call from the then secretary of the Department of Finance, David Doyle, who asked me to come and meet him and he told me that Frank Daly and I were being appointed to the board of Anglo Irish Bank. And that's how it happened.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. And then, also, subsequently, in terms of your appointment as chairman of the bank, how did that ... how did that happen?
Mr. Alan Dukes:
Donal O'Connor had been chair from the point of nationalisation. He was executive chair up to the time that Mike Aynsley was appointed as CEO and he reverted to being ... you know, a normal non-executive chair. And I have to say, he put his heart and soul into it. He worked extremely long hours at it and he announced that he wanted to resign from the bank in mid-2010, so we had to look for another chair and the other directors, kind of, persuaded me to take it on.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Do you have any views as to ... if you had your time back again ... the initial conversation with Minister Lenihan ... or the decision to-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Thank you both.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. We now move on to Deputy Michael McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you very much, Chair. I'd like to welcome Mr. Dukes and Mr. Aynsley and if I can start with you, Mr. Dukes, and take you to the decision in February 2013 to liquidate the bank. Can I ask your view now of that decision and whether you believe that greater value would have been achieved for the State if the orderly wind-down of the bank as decided previously, if that had been implemented instead of a liquidation?
Mr. Alan Dukes:
Chairman, without wishing to stray outside of the remit of the committee I will say by way of general introduction that guessing what might have happened if the bank had not been liquidated seems to me to be the kind of second guessing post factumof decisions which is rather dangerous, but I won't go any further with that thought because I think you can probably understand why. There's another commission of investigation coming down the tracks.
The decision to liquidate in February 2013 was motivated, and this is on the record of the Dáil, by a concern with dealing with the cost of the promissory note that had supported the bank for some time before that. I described the decision at the time as an astute piece of financial engineering, which I think it was. I feel vindicated in that view by the fact that the current second secretary of the Department of Finance has used the same phrase, I think, in evidence to this committee. I think it was an astute piece of financial engineering and it's part of what I meant in my opening statement when I said that the State seemed to have dealt very well with the macroeconomic fall-out from the decision in the first place.
I think, and there will be other people who can give a different view on this, I think that had the bank not been liquidated, given the market conditions as they changed, you know, through 2013 up to today, I think it's possible to speculate that we might have made an even better return from the remaining assets of the bank if it hadn't been, in the course of being disposed of, in a liquidation but that has to be speculation. Having said that, as far as I can see, the special liquidators are doing an extremely good job. I don't know when they'll have concluded their work but it must be pretty soon.
Michael McGrath (Cork South Central, Fianna Fail)
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Can I raise the issue of the acquisition of the loans, Mr. Dukes, by NAMA, and Mr. Aynsley referenced this. The discount in the end was 61%, almost €21 billion of a loss crystallised immediately onto the books of Anglo-IBRC. Can you just clarify in terms of the valuations placed on those loans by NAMA, was the bank in a position to challenge any of those valuations or was it a very structured rigid process which resulted in such a large discount being applied?
Mr. Alan Dukes:
Well, in general terms it wasn't possible to contest the valuations put on by NAMA. NAMA decided what the valuation was and that was that, and that's the way the legislation was written. Where it was open to discussion, and I'm open to correction on this, where it was open to discussion was whether or not a given loan or relationship actually qualified under the terms of what should be transferred to NAMA and there were some discussions about that. There was a point when the chief executive of NAMA expressed the view that Anglo was not being very frank with NAMA in terms of the valuations, the presentation of the loans. That, I think, was due to a misunderstanding. What is the case is that there was still, at the time in 2010 particularly, and we saw it later, there were difficulties, which Mike Aynsley referred to in his opening remarks, with some of the documentation underlying some of these loans, I mean title and so on-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Sure.
Mr. Alan Dukes:
And we had to deal with that subsequently because, as you know, after NAMA had taken over these blocks of loans from the banks, they kind of outsourced the management of certain parts of it-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes.
Mr. Alan Dukes:
-----back to the originating banks, so that we still had to deal with the question of perfecting the documentation behind the loans. But, basically, the answer to your question is that it was NAMA that decided-----
Michael McGrath (Cork South Central, Fianna Fail)
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There wasn't a negotiation.
Michael McGrath (Cork South Central, Fianna Fail)
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By any means.
Mr. Alan Dukes:
And it would be interesting to see, and I don't know whether we'll ever be able to do this sum, what kind of return NAMA got from the loans that were transferred to it.
It's a kind of an interesting theoretical speculation, I think, in the case of Anglo loans, NAMA will turn out to have made more than a net 39% off the face value of the loans that were transferred, and that'll go into making up the surplus of NAMA at the end of the day. From the State's point of view, it's just one pocket or the other.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. Mr. Aynsley, you say in page 15 of your witness statement, the main one, "I formed the view that much of the comment/challenge from the DoF increasingly became politically motivated." That's quite a serious charge to make. Can I ask you to elaborate on that, please? What do you mean by that?
Michael McGrath (Cork South Central, Fianna Fail)
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Page 15, after the first paragraph.
Ciarán Lynch (Cork South Central, Labour)
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Please can you highlight it on the screen, Deputy, if you could? It's up.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes. So, it's immediately after the top paragraph.
Michael McGrath (Cork South Central, Fianna Fail)
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It's two lines that sit on their own.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, yes.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes.
Mr. Mike Aynsley:
-----that we had where there were ... in fact, there were numerous situations where Department officials would second-guess on transactions that were ... had been through a full credit committee process, a full transaction review process, full board process, and would seemingly then have unqualified people in the loan recoveries or the credit areas in the Department delaying transactions and asking questions that just didn't make sense to us. And this was an ongoing ... it's difficult to explain this because I can't talk about specific transactions and specific-----
Michael McGrath (Cork South Central, Fianna Fail)
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Sure.
Michael McGrath (Cork South Central, Fianna Fail)
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But why do you believe it was political rather than motivated by what they felt was in the best interests of the State?
Michael McGrath (Cork South Central, Fianna Fail)
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Why was it political, the motivation?
Mr. Mike Aynsley:
There were times where specific client names were mentioned, and I can think of one in particular where the specific name was mentioned as one that the Minister would not really like to have to stand up and defend in public. There are a couple of these ... in fact, there was more than one of those.
Michael McGrath (Cork South Central, Fianna Fail)
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And would that wish even-----
Ciarán Lynch (Cork South Central, Labour)
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Would Mr. Aynsley-----
Michael McGrath (Cork South Central, Fianna Fail)
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Would that wish even override what is in the best commercial interests of the bank?
Mr. Mike Aynsley:
No, and this was always a point of conflict, and this is where we ... we always took the view that we had a situation with the relationship framework, with the requirements under the commitments letter, where we needed to act commercially and the Minister's role was to intervene in areas where there was a clear public interest in doing so, but the commercial aspects of the transaction, if there wasn't a public interest ... a true public interest perspective, then the commercial aspects needed to be pursued. And we did that. Now, we also recognised that if the Minister wanted us to act differently, then the Department officials and the Minister could organise for a ministerial instruction to provide us with the cover to do that.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. You do raise one specific issue immediately after that reference, and I can't lead you into areas that will be covered by the commission of investigation, but it's quite an extraordinary extract from your witness statement, and I'm not going to question you about the execution of the transaction itself because that may or may not be examined by the commission, but your central allegation here is that an official from the Department of Finance indicated a preference that a bid, which was €100 million less than the highest bid, would be accepted because the highest bidder would not be of the liking of the Minister, essentially, if that bidder was successful.
Michael McGrath (Cork South Central, Fianna Fail)
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That's an extraordinary allegation, Mr. Aynsley.
Michael McGrath (Cork South Central, Fianna Fail)
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Has that e-mail been furnished to the inquiry yet?
Michael McGrath (Cork South Central, Fianna Fail)
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But it would be in the possession of the special liquidator.
Michael McGrath (Cork South Central, Fianna Fail)
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And, essentially, the e-mail provides an account of a conversation, is it?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And it was sent to you by way of ... of a formal memo-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----an e-mail memo.
Michael McGrath (Cork South Central, Fianna Fail)
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And what steps were taken ... like, when that was elevated to your level-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----I mean, if that is true, then it's a truly extraordinary situation. Like, how-----
Michael McGrath (Cork South Central, Fianna Fail)
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What steps did you take when you got that information? And that those-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Sure.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes. No, no, we're not going anywhere near that space but-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----but just to be clear, other grounds weren't cited for this view being expressed by the official. Are you saying that the only reason cited for the preference being a lower bid to be accepted was because of the identity of the highest bidder?
Michael McGrath (Cork South Central, Fianna Fail)
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No other grounds were cited-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----according to the ... the executive who-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----brought the information to your attention.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. Okay.
Mr. Mike Aynsley:
But I think this was ... you know, this is ... this was part of an overall issue with ... you know, I go on also to talk about ... in the next example, of an issue around a wish to push us to enter into bilateral transactions. And we took a view very early on that everything that we did in terms of the loan recovery process and the ... in particular, loan sales, needed to be within a proper process, and that process needed to be open; it needed to be transparent; it needed to involve multiple parties, multiple bidders. And there were different ways of constructing sale processes and bidding processes but they were always constructed in ways which ensured that the correct oversight and diligence was conducted around every aspect, whether that was internally or externally or around the individual parties. So for us to enter into bilateral processes and to say "Okay, well, we'll just ... this guy's interested. He's knocked on our door" and move to the point where we negotiate a price for something that we just weren't interested in. And we feel that if we had gone down that pass ... path, it certainly wouldn't have maximised our main metric, which was the value of the loans recovered.
Michael McGrath (Cork South Central, Fianna Fail)
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And how certain can you be that those views and the view on the particular transaction were not the rogue views of an individual as opposed to representing the Department view or the political view?
Mr. Mike Aynsley:
Well, I think we ... we had also heard ... there's a number of these and I think there's a couple of documents in the e-mail system that would bear out the extent of these requests and the pressures that were put on us and I think, you know, if you get into those, it's very clear that they come from different people within the Department and, certainly, led us to the very solid view that this was a direction that we were being pushed.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Alan Dukes:
Could I just add one or two brief comments to that, if I may? Whether that was a rogue view of an individual in the Department, one can't be sure. I have to say, I frequently had the impression that information that we transmitted to the Department didn't percolate all the way through. You know, it maybe didn't percolate all the way through to where it should. And a second comment about a sales processes: we were very concerned at all points to ensure we got maximum value, which is how we designed the processes but there was, from time to time, a suggestion that we should do it differently. For example, I was urged at one point by an official to speed up sales of various performing assets, whereas, as I say in my statement, we tended to take the view that if there was a loan that was performing, meeting all of its requirements and covenants and it was going to mature within the wind-down period of the bank, there wasn't a good reason to go and try to terminate that early, although this was what was being urged.
And when I asked the person in question why on earth we'd want to do that ... because if we had a performing loan and the borrower was meeting all the covenants the only way we could persuade the borrower to pay off the loan early would be to put some incentive on the table, which meant we would be getting less out of it than we otherwise would. But, you know, there was a view, sometimes expressed by some people in the Department, that if there was a good loan there, we should take the money and run, you know, force a refinancing or a sale on the basis that, you know, there was a time value of money and that a bird in the hand is worth two in the bush, whereas we took a different view that we had to look at recoveries over the whole period and, in addition, if you had a performing loan that was paying, it was making a contribution on a continuing basis to the running costs of the bank.
Michael McGrath (Cork South Central, Fianna Fail)
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So, finally, is it your evidence that there was a pattern of pressure from the Department, when it came to asset sales, to have a less transparent, less open sales process than the bank?
Michael McGrath (Cork South Central, Fianna Fail)
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Occasional?
Michael McGrath (Cork South Central, Fianna Fail)
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How many times?
Michael McGrath (Cork South Central, Fianna Fail)
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What rationale would be offered?
Mr. Alan Dukes:
There was the other point which had to do with the rate of procedure to the wind-down. This is maybe trespassing on some other question. It was decided in 2011 that we should wind down the bank over ten years - maximum recovery for the State and maximum avoidance of risk, if you like. The actual outline proposal for the pace of the wind-down was one which the bank proposed. I proposed it at a meeting with the relevant authorities and it was accepted. I made the point, at that stage, that we could probably do a more rapid wind-down with not a very much bigger risk of execution and I was told, at that point, "No, do not propose that." And I assumed, and I think I was probably right in assuming this, that the authorities did not want to be corralled into a wind-down process that might be faster than we could actually deliver so we agreed on an outline wind-down proposal, what we called, in our own internal jargon, "the blue bars", which were the declining outstanding loan values in each year. But, from time to time, we would be urged to accelerate the process. Now we did actually wind down a bit faster than "the blue bars" proposal because we found we could do it without sacrificing the level of return and, in fact, the US book was a very good example of that. We certainly thought that had we done a series of individual sales of those assets, we would have made a better return out of it, but it would have taken much longer than the process that we actually engaged in and we were concerned, for other reasons, for other considerations, to wind down the American operation, you know, as quickly as we could and to get rid of all the outlying parts of the bank so that we could concentrate on the core.
But, you know, from time to time there would be pressure to say, "Well, can you not do it a bit faster?" and we said, "Yes, of course, we could do it faster but if you want us to do it faster than we have undertaken to do in the exercise, then please give us a formal instruction to do that", and that was never forthcoming.
Michael McGrath (Cork South Central, Fianna Fail)
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Chair, I want to formally put on the record a request that Mr. Aynsley's witness statement, including that extract and the testimony that we are being given, would be formally sent to the commission of investigation looking at certain transactions and other matters at the IBRC, that we would write and send that to them.
Ciarán Lynch (Cork South Central, Labour)
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Okay, I just need to get legal advice with regard to the separation of the two committees. I understand what the intent of what the Deputy is actually saying. Further clarification on that request then will be dealt with, okay?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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Thank you. I call Deputy Pearse Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat, a Chathaoirligh, agus fáilte roimh an beirt agaibh.
I'm gonna, Mr. Aynsley, just focus in on ... just that statement that you give on page 15 ... the shock that you referred to in your statement in January 2013 when you received the e-mail memorandum from one of your direct reports. You go on to say about the Department of Finance official was opposed to the sale of a major asset to a named Irish businessman or his company and then go on to, as Deputy McGrath has questioned, about the fact that they would prefer if another sale wouldn't take place to the same Irish businessman or his company and would rather €100 million less from another party. The e-mails that you're referring to, are they e-mails that you have ... that are with the special liquidator ... are they e-mails directly from the Department of Finance or e-mails from an official within the bank who reports to you that recounts this story?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, and in relation to ... that's the first transaction-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, I appreciate that.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. The first transaction that's referred to in your statement was completed and opposed by the Department. The second transaction wasn't and they were, as was said ... was requesting that it would be sold at €100 less than what ... €100 million, not €100 ... they'd maybe settle for that one ... a €100 million less to another party.
Mr. Mike Aynsley:
Well, I think it says ... as it's sort of presented here, it was, well, you know, "With this particular client what are you doing selling these loans to this particular client?" To which the reply was, "Well, you know, what do you expect us to do, you know ... what do we do if there's ... the same client comes along to buy this particular asset, would you rather us sell it to him or to someone else for €100 million less?" And the answer is, "Well, sell it for €100 million less and I think the Minister will back that." That was the-----
Pearse Doherty (Donegal South West, Sinn Fein)
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So, the second transaction is a hypothetical transaction. Is that what it is?
Pearse Doherty (Donegal South West, Sinn Fein)
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No, it's not a hypothetical transaction. Okay. But the figure is a hypothetical figure. Would that be correct?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay and what impact did that have in relation to the bank as to how they then progressed from there?
Mr. Mike Aynsley:
Well, bear in mind this is January 2013 and 7 February there is a point of liquidation. There were a series of actions that I took when I got this because it wasn't the only ... you know, this is an extract of an event where there were quite a number of other events in the same vein that are also detailed in the e-mail. So, you know, I think the action that we took ... as I say if we ... if I went into it it may identify the individual but it's there to be scrutinised if-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, can I move on to another-----
Ciarán Lynch (Cork South Central, Labour)
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Can I just come in for a second ... just for legal ... I would be advising you not to be identifying any individuals, Mr. Aynsley, at this point.
Ciarán Lynch (Cork South Central, Labour)
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I would be advising you not to be identifying any individuals in this regard.
Ciarán Lynch (Cork South Central, Labour)
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Perfect, thank you.
Pearse Doherty (Donegal South West, Sinn Fein)
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You go on to talk about your astonishment at ... another key point was the bilateral sales arrangement that the Department of Finance wanted you to engage on, something that you had previously embargoed in favour of open sales that were transparent, arm's-length and fully valued. Can you inform the committee again, without any details or any specific case, did such bilateral sale arrangements take place?
Mr. Mike Aynsley:
To my knowledge, yes, but they were quite particular assets where there were quite particular problems with security and the ... again, there was a ... as I say ... sales processes ... they're not all the same. Bidding processes aren't all the same, you know. I'm not going to talk about Siteserv because that's gonna be the-----
Ciarán Lynch (Cork South Central, Labour)
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It just might be now, so-----
Ciarán Lynch (Cork South Central, Labour)
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I've had my own errors today, Mr. Aynsley, so you're okay but I'd ask you to revert back now.
Mr. Mike Aynsley:
Without talking about that particular transaction, you're very well aware that there was a process around that that you would say is different to a process where the bank is ... has that company in receivership and is deciding to embark upon a sale process, and the bank is running at versus somewhat.
There's different processes around these things and there's different governance structures that you put around them to ensure that the bank is protected at every stage.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, so if it were-----
Mr. Mike Aynsley:
So ... so it ... you know, a lot of this is about ensuring that you're getting value and you know the bidding process is one way to ensure that you're getting maximum value but there's other ways of identifying price points to triangulate values to ensure that you're getting good value.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. So if there were, as you've said ... you did engage in bilateral sale arrangements, then why are you so astonished at the fact that the Department of Finance was asking you to enter into bilateral sales agreements and how do you say that the bank had embargoed them, given what you're just after telling us?
Mr. Mike Aynsley:
Well the bank embargoed them generally. But as I say, if there was a way of creating price points or wrapping processes around them, we would do that. But this was very few and far between. I can't think of more than two or three situations like that out of the entire loan portfolio.
Pearse Doherty (Donegal South West, Sinn Fein)
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And was the Department of Finance wanting you to do that at a massive level?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. You talk on page 8 of your statement about the sale in July 2011 of a large part of Anglo's US portfolio-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----a sale that you describe as, quote, "sub-optimal" in terms of recovery levels and one that would not have been undertaken by the bank, and to quote you again "without ministerial instruction". Mr. Aynsley, are you saying, or not, in your statement, that the sub-optimal sale of Anglo's US assets in July 2011 was done under ministerial instruction?
Pearse Doherty (Donegal South West, Sinn Fein)
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What was your understanding of the reasons behind this sub-optimal sale?
Mr. Mike Aynsley:
This is ... this is actually ... I think this is a very important concept because it gets right to the heart of, you know, the difference between the highest sale price and what is the best economic value in a transaction. And, in this particular case with the US book, there were economic value considerations outside the control of the bank and they were really at the State level. So whilst, you know, we're governed by the EC restructuring plan, we're governed by the commitments letter which says that we need to get certain returns on assets when we sell on on a net present value basis, and we have to deal with timeframes for running down a portfolio so ... in other words you just don't want to go and sell a portfolio and fire sale it and say "I've done a good job because I've wound this bank down quickly." The idea is to wind it down no quicker than the timeframe, but to achieve the best result.
In this case there was a major result that the State was looking for apart from the financial return in Anglo Irish Bank, and that was to alleviate this very significant problem with the ECB funding levels. So the deleveraging of the system was something which was a statewide objective that we couldn't make a decision around. The Minister needed to make that decision, ultimately decided that this was an important component, formed part of the decision-making process and resulted in a ministerial instruction for us to sell the portfolio or include some assets in the portfolio that we probably or that we definitely would have kept for a longer period if these other issues were not at the forefront.
Pearse Doherty (Donegal South West, Sinn Fein)
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And did you put up an argument with the Department in relation to what-----
Mr. Mike Aynsley:
No, those sorts of issues we wouldn't argue with those sorts of issues, you know ... we understand those. Those are issues outside the control of the bank and they're satisfying broader objectives and if the Minister wants to do that it's a Minister's prerogative to issue us an instruction and ask us to do that. There were certain assets that we did say it makes far more sense with this particular asset not to include it for whatever reason. It might have been, for example, that there was a timeframe that didn't allow for the perfecting of security and, therefore, if you included it, you would get a 40% return on it rather than 80% if you held it for longer. So there were some rational exchanges in making decisions around those assets.
Pearse Doherty (Donegal South West, Sinn Fein)
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Were you able to put a potential value ... a potential amount on the loss to the bank if it were ... if it was sold at that period of time?
Did you have a value on it?
Pearse Doherty (Donegal South West, Sinn Fein)
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What was the loss you believed by selling it early, as was instructed?
Pearse Doherty (Donegal South West, Sinn Fein)
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Was it less than €100 million? Was it well in excess of that?
Ciarán Lynch (Cork South Central, Labour)
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You're getting a bit more specific here, Deputy.
Pearse Doherty (Donegal South West, Sinn Fein)
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No, I was just looking for a range as a-----
Pearse Doherty (Donegal South West, Sinn Fein)
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In your witness statement, you note that in 2009, as part of the overall asset quality review, there was a need to repair and perfection of documentation and security. Can you briefly give us some idea as to the nature, extent of the repair and perfection exercise required?
Mr. Mike Aynsley:
It was substantial across essentially every portfolio. And, you know, the old Anglo Irish Bank conducted its activities in, you know, a way that I hadn't seen previously. I'll give you a couple of examples. Boom markets - a client being banked by Anglo for a long period of time has value in the assets that are being financed that's increasing because the markets are going up. The bank at some point goes along and says, "You've now got all of this extra value in your assets. How about we lend you some more money so you can go off and buy something else?" So, they lend another €100 million with the agreement that what they'll do when he spends money is go back and pick up the security on those particular properties. And then, for whatever reason, it is not done. So, enter the new management team. We start get in loan by loan into these assets and we find that they haven't perfected security and it's really not just one or two transactions, it's endemic, and we need to go through it in a detailed fashion across every aspect of the loan portfolio - every category.
And, you know, I know the numbers that, you know, you saw coming out of Anglo were massive. The losses were massive and they seemed to never stop. And part of this was just the sheer work involved in getting through the portfolio at a detailed level. That wasn't something you could just do overnight and say, "Okay, we're done with it now." It took months and months and extended resources of internal and external specialists to come in and do this work.
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I ask you - and it was touched on earlier - in terms of the management team in Anglo challenging any of the asset valuations ascribed by NAMA which resulted in the loss of €21 billion on sale or on transfer? Can you talk to me? Did you challenge them and why did you challenge them? What's your view on that?
Mr. Mike Aynsley:
Look, I can't recall specific examples but I do recall there were some challenges and objections. I can't recall NAMA ever coming back and saying, "Yes, you're right, so we'll give you a better haircut on that", but I know that there were some challenges but I can't recall whether we ever had a good result.
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Aynsley, we've had a number of Anglo's biggest borrowers before the committee giving evidence. We've heard from Sean Mulryan and Joe O'Reilly. Both of them, in their evidence, said that they intend fully paying back everything as Anglo's debts are being recovered. Were the NAMA write-downs, in your view, given that they're-----
Pearse Doherty (Donegal South West, Sinn Fein)
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They both stated that they expect to pay back all of their loans, all of their NAMA loans, and they were the two of the largest borrowers with ... they were in the top category in terms of borrowing for Anglo. Given that we've heard from two of those, and it is only two, and they say that they will back everything, was the write-downs from NAMA justified? Could Anglo Irish Bank have dealt with those loans themselves under new management, under a new board? Can you talk to me about that there in terms of the write-down that was applied, the justification for it and what that did to the institution going forward?
Mr. Mike Aynsley:
I mean, these are like, "Well, what if it had gone the other way?", sort of, questions and I mean, they are always very difficult, aren't they? I guess a couple of comments. Whether they were borrowers, distressed borrowers or staff walking into my office in the first couple of months - the first three or four months - it was like, "Well, of course, we're going to pay everything."
And it became ... actually with clients really after the first couple of months, I decided I'd take a break, quite frankly, from talking to customers. And it was because I'd get one story and I wasn't at that stage across enough detail of the actual loans and the exposures. And I was finding that I'd get really good story spun by people who ... very engaging and then we'd go and look behind the scenes and find that the numbers looked totally different and, you know, in some cases, it was just irrecoverable. It's amazing what people will put forward as, "Well, if you'd only done it" ... you know, we had a situation where a client said, you know, an enormous amount of money, "We're gonna pay you back everything", but what it actually required was a loan in excess of half a billion to help support them and then they were going to pay zero on it for seven years. Well, you know, that's not a cost to the bank in that environment for us, that's a cost to the taxpayer and we just weren't in any position to do those sorts of transactions.
Ciarán Lynch (Cork South Central, Labour)
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I will bring you back in again in the wrap-up. I'm moving on. Senator Michael D'Arcy.
Michael D'Arcy (Fine Gael)
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Gentlemen, you're very welcome. Mr. Aynsley, if the liquidation - I know you're not that impressed with counterfactuals---
Michael D'Arcy (Fine Gael)
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I know you're not that pleased with counterfactuals but if the liquidation hadn't not have happened in 2013, do you think that greater value would have been created for the shareholder if the bank had been allowed continue an orderly, slower, more careful write-down than liquidation forced?
Mr. Mike Aynsley:
Yes, you know, there is counterfactuals and I think Mr. Dukes covered off very well that. You know, I guess the only thing I'd say is, like, markets are markets and there are lots of variables. You know, some of those variables ... you can put a lot of assets into a market at a point in time and the timing is right and you do very well off them, and, you know, the market's not the same three months later. We've all seen that. Now, having said that, I think we'd recognise that since the liquidation, the markets continued to rise and I think ... you know, if you look to spread out the loan sales over a longer period of time in a rising market, you're going to get a better result. But, I mean, it's academic, isn't it? You know, we're in the situation we're in.
Michael D'Arcy (Fine Gael)
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Can I ask you, Mr. Aynsley, in the old Anglo, pre the new team coming in, was the challenge presented by the risk function to lending strategies strong enough in the period prior to the crisis?
Michael D'Arcy (Fine Gael)
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What you saw from-----
Mr. Mike Aynsley:
From a cultural perspective and talking to the people who were there I don't see how it could have been. As I say, you know, the risk people viewed themselves and were considered like second class citizens. They had processes and they went through processes but it was more finding ways that they could do the transactions, rather than examine the risks in the transactions and then overlay that against where they believed the market was going. So, I think it would've been a very difficult thing for a good risk person to be involved with.
Michael D'Arcy (Fine Gael)
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Mr. Aynsley, when the new Government entered office, can I ask you: did you feel there was a change of policy towards Anglo Irish Bank or did the previous strategy continue?
Mr. Mike Aynsley:
So ... the ... you know, I think in my statement, I did highlight the Fine Gael manifesto which was pretty blunt in terms of, you know, "We're going to liquidate this bank by transferring its assets and obliterating it by the end of 2011." And that, sort of, runs counter to the approved plan that had recently been put in place with the European Commission, which looked at a measured wind-down over a 20-year period of time so ... look, you know, it seemed pretty obvious that there was, if you like, changes afoot, just what they were, you know, I have to say I didn't really know because, to be blunt, I can't really be sure what election promises are going to be fulfilled when the new Government actually gets in.
So I didn't really know whether that would be the case. The other thing you don't know as well is, the new Government coming in, how quickly they are going to come to terms with what they've got their hands around. You know, they're not across all the detail as are the old Government. So, you know, there was uncertainty but, certainly, with the new Secretary General coming in, or the new head of banking policy, it became clear very quickly that the approach was to deleverage the system and deleverage, largely through Anglo Irish Bank, very quickly.
Michael D'Arcy (Fine Gael)
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Can I ask your knowledge of the deleveraging within the other banks, within AIB and Bank of Ireland? Was there not a similar deleveraging with those ... with their assets, that they were forced to sell?
Mr. Mike Aynsley:
I think I refer ... there is a document, I don't know exactly where it is, which I found quite useful in, sort of, understanding this which is... I only had a photograph of it on my phone so I couldn't print it out to bring in so I had to draw this but I think it's useful just thinking about the timing of the losses in the banks. And, of course, you know, Anglo took the early hit of €4 billion in the first half of 2009. By the end of 2010, they had taken €18 billion and then another €17.3 billion so €29.3 billion, so Anglo really did the work on the asset portfolio, understanding where the destruction in value was and took those hits up front. This report I'm referring to is labelled ... it's from the guarantee to bailout, looking at the cost of the capitalisation of the banks and the reference is Honohan, 2012. And from that, you know, the other banks really... Bank of Ireland did not take a €5.2 billion hit until March 2011 when they did PCAR and AIB didn't take a hit until March 2011 of €13.3 billion so whilst you could look in those early days and, you know, I had these discussions early on with the Department of Finance about the size of the hits we were taking and saying "Well, it sort of doesn't make sense to me what's happening in AIB because, given their activity, their involvement in the same markets over the same period of time, there should have been a direct read-across from what we knew about their portfolios." And that wasn't coming through in these numbers; that didn't come through until a lot later in those banks
Michael D'Arcy (Fine Gael)
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Can I ask, Mr. Aynsley, in terms of the further restructuring of the banking sector in Ireland, Anglo Irish turned out not to be systemic, did you feel-----
Michael D'Arcy (Fine Gael)
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-----Anglo Irish Bank turned out - IBRC turned out not to be systemic, there was a decision to go down the route of two pillar banks.
Mr. Mike Aynsley:
See, I think this issue of "systemic" is an interesting one because the systemic importance of Anglo Irish Bank changed as the market evolved. There was a massive level of international funding supporting all of the Irish banks. Of course it was a very, very high proportion of funds supporting Anglo Irish Bank from the international capital markets and I think we all know, with the fall in the markets and the reputational damage done to Ireland, that virtually all foreign jurisdictions began to withdraw funding from Ireland and this was a major problem. If ... in the early days, Anglo Irish Bank had large pools of retail deposit funds from the UK and they also had large pools of wholesale funds from the debt capital markets globally and from corporates globally. As time progressed and the bank wound down its asset portfolio and repaid a lot of these - and, indeed, a lot of them were replaced with short-term funding from European Central Bank - the systemic importance of Anglo waned.
Michael D'Arcy (Fine Gael)
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Yes. How much was the ELA at its peak to Anglo Irish Bank?
Michael D'Arcy (Fine Gael)
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And then other eligible collateral-----
Michael D'Arcy (Fine Gael)
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------was there, on top of the €40 billion-----
Michael D'Arcy (Fine Gael)
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Mr. Dukes, could I ask you ... you said in your opening statement that the Irish Government and regulation - I assume you're talking about the authorities attached - did not have tools to deal with the crisis that hit? In previous evidence, Governor Honohan came back, he presented to us in the context phase but subsequently clarified that the Governor of the Central Bank did have tools available but he didn't use them.
Michael D'Arcy (Fine Gael)
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Could I ask you your opinion in relation to the tools and the usage of those tools?
Mr. Alan Dukes:
What I pointed out in my opening statement was that we didn't have a bank resolution scheme. We didn't have bank resolution legislation. And if it came to the point where a bank has to be wound down or liquidated, the only legislation that existed in 2008 in this country was the Companies Act. And that, you know, while it was appropriate for part of the operation, it wasn't appropriate to the specific things that you have to do, you know, when winding down a bank.
Michael D'Arcy (Fine Gael)
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You're talking about the special resolution regime.
Michael D'Arcy (Fine Gael)
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Okay, but the tools I'm talking about-----
Michael D'Arcy (Fine Gael)
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Sorry, the tools I'm talking about were, that were available to the Governor of the Central Bank via the previous Acts, the Central Bank Acts, in relation to financial stability. Those tools were available.
Michael D'Arcy (Fine Gael)
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Could I just clarify-----
Mr. Alan Dukes:
'04. That was flagged in a financial stability report the following year as being a danger. But there didn't seem to be anything more than some kind of polite suggestions from the regulator to the banks that they should maybe think again about doing these things. Now, I have to say that in the absence of a specific bank resolution regime, regulators anywhere have a big problem because if they really get annoyed or upset or worried about a bank, at the end of the day the only sanction they have is to remove the banking licence and that is the nuclear button. I don't think any regulator ... I haven't heard of any case in the last decade where regulators have used that.
Michael D'Arcy (Fine Gael)
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Can I ... Mr. Dukes, Governor Hurley described the legislation and the tools as "theoretical". Did you hear him make that point?
Michael D'Arcy (Fine Gael)
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Okay. Could I ask your view in relation to theoretical powers?
Mr. Alan Dukes:
Yes. This is maybe a wider philosophical discussion; it's kind of common cause among people who comment on this that the problem we had was light-touch regulation. I don't think there was all that much wrong with the form of the regulation; it was the fact that it wasn't applied. And, you know, as you've recalled, Senator, there were tools there that weren't used that could, I think, have been used to head off some of the worst features of the problem. And I certainly think it was within the power of the financial regulators, (a), to say to the banks much earlier than had been said that they were over-concentrated from a risk point of view in certain sectors and to certain borrowers and, (b), to say to the financial institutions generally that 100% mortgages are banned. We now have rules that are much more constraining about mortgages and I think, probably, we would have been better off if we had rules of that kind from, say, 2004 on.
Michael D'Arcy (Fine Gael)
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Mr. Dukes, you were appointed to the board of Anglo with Mr. Frank Daly, former chairman of the Revenue Commissioners. And how did you find the board or, when you presented, in terms of the previous, the old model, as such, prior to nationalisation?
Mr. Alan Dukes:
Well, as I say, I didn't have an awful lot of experience with the old board because it didn't exist for very long after Frank Daly and I were appointed. This is just an impression and I can't put my hand on my heart and say that this is the full truth, but I have the impression that a number ... that a lot of decisions made by the board of Anglo Irish Bank, previous to the appointment of the public interest directors, had been kind of worked out in advance by a smaller inner group and then presented to the board.
Michael D'Arcy (Fine Gael)
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So a board within a board?
Michael D'Arcy (Fine Gael)
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A board within a board?
Michael D'Arcy (Fine Gael)
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Was that your impression, Mr. Aynsley?
Michael D'Arcy (Fine Gael)
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Can I ask my final question to both of you? Was NAMA a mistake?
Mr. Alan Dukes:
I don't think so. I got myself in bad odour with my previous party in 2009 for disagreeing with them both about NAMA and about the method of restructuring banks. It seemed to me that if you were going to wind down or cure the running sore that was distressed loans in banks, it needed some kind of a vehicle to take over the distressed loans, and that would have been the case whether you liquidated them or set out to wind them down, or whatever. There was a need. At one point, in fact, probably early in 2010 when we were just beginning the process of transferring loans to NAMA - which was going to be a difficult process - I remember raising the question, just for discussion, whether we shouldn't transfer all of the Anglo loan book into NAMA and close down Anglo. The tenor of the replies that I got - I never made it as a formal proposal, but I kind of floated it - the tenor of the replies which I got which I think was reasonable, was that that would have been far too big a chunk to put together. Having said that, as I said in my opening statement, I think NAMA has worked rather well.
Michael D'Arcy (Fine Gael)
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And, sorry, Mr. Dukes, the €42 billion discount, the haircut, how much of that will be achieved by the State?
Mr. Alan Dukes:
I don't know. I don't think we'll ever know for sure. But I think that if we could do the accounting, and particularly if the market stays roughly where it is now, NAMA will turn out to have made a profit-----
Michael D'Arcy (Fine Gael)
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I know, but the-----
Mr. Alan Dukes:
-----and the "profit" that NAMA will make will be the direct mirror image of the "loss" that banks make from the haircut on the transfer to NAMA. From the State's point of view, it is a zero-sum game, you could say. It's just a question of the location and where you account for the losses.
Ciarán Lynch (Cork South Central, Labour)
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I just want to deal with one question, Mr. Dukes, and Mr. Aynsley can come in on this as well if you wish after Mr. Dukes has answered. You spoke about the ten-year, sort of, wind-down approach to IBRC and the kind of cost-benefit analysis of that and so forth. Maybe if I could ask you to elaborate a bit further and maybe give some background behind the liquidation of IBRC as a device to deal with the promissory note.
Mr. Alan Dukes:
Well, on the wind-down, first of all, Chairman, the target was to wind it down over ten years by 2020. We had actually concluded by the winter of 2012 that we could do the wind-down by 2018. In fact, Mike Aynsley said to me early in December, I think, of 2012 that he thought we could do the wind-down by 2016, and we actually didn't get time to discuss that properly before the liquidation happened.
My understanding of the motivation for the liquidation at that point was that the State wished to avoid the necessity to pay a further €3 point odd billion every year at the beginning of March to fund its obligations under the promissory note, and that by winding down ... by liquidating Anglo the State believed it had the opportunity to replace the promissory note by cheaper money, basically through other means, and that that would allow ... a requirement of doing that was the liquidation of Anglo-----
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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Okay, so do you wish to add anything to that, Mr. Aynsley?
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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No, that's fine, yes.
Mr. Mike Aynsley:
Yes, which was put in place not long after the note was issued, that created different accounting treatments on the State's and the bank's books. And, by doing this, it alleviated the issue that they had of starting to pay back this. Then there was ... as I said, you know this is ... a lot of these decisions are down to the best economic value, so it mightn't have been the best economic value for Anglo Irish Bank to liquidate the bank------
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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Okay. And just to clarify, because the ... there was liquidation of IBRC with emergency legislation and one would envisage that that all didn't happen in one day, that there was preparation for that legislation over a period of time, were you, at any time, informed that there was going to be liquidation, and, as directors, if you had sight of that or with the roles that you had in the bank, would it have ... would it have put you in a position that you would have had to operate against the liquidation?
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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All right. With the business plan that you were proposing, with a ten-year wind-down, what would have actually happened with the promissory note?
Ciarán Lynch (Cork South Central, Labour)
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For how long?
Ciarán Lynch (Cork South Central, Labour)
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For how long?
Ciarán Lynch (Cork South Central, Labour)
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For nine years, okay.
Mr. Mike Aynsley:
So ... so from that perspective, it was reliant on the ELA funding, which, of course, it was pledged with the ... and this is ... this is again back to this left pocket right pocket, where the value is being taken and, I think Alan brought this up before, the real cost of Anglo Irish Bank or any of these initiatives involving NAMA are really not going to be known until a pretty complete reconciliation of all of these pockets is involved, including how much is being taken against the ELA funding, by the Central Bank, what the cost was for Anglo, how much NAMA has cost, how much NAMA has made-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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It's just coming up to 20 past eight. I'm just proposing a ten-minute recess ... or suspension actually for a moment. In doing so, I'd just like to remind both Mr. Aynsley and Mr. Dukes that you're ... that you remain under oath. You can take a break as well from the committee room if you wish, and if you wish to discuss with any legal advisers or supports that you have here, you're entitled to do that so as well, but with no other person in that regard. So, with that said, I propose that we return at 8.30 p.m. and continue with proceedings. Is that agreed? Agreed.
Ciarán Lynch (Cork South Central, Labour)
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Can I just call the committee back into public session, if that's agreed? Okay, just where I was rounding off there before we broke, Mr. Dukes, just on the issue of eligible collateral and ELA ... that the ECB had exposure with regard to IBRC. Have you any quantification of that sum?
Ciarán Lynch (Cork South Central, Labour)
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Okay. And how was that dealt with? How was it disposed of? What was the conclusion of that €40 billion?
Mr. Alan Dukes:
Well, the ... the ... the objective was to wind down reliance on ELA as far as possible.
It was interesting, Chairman, that for a time early in the whole process, when we spoke about ELA, we talked about emergency liquidity assistance and we were told no, that was not the official name. It was exceptional liquidity assistance but I think that distinction has since died.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Eoghan Murphy.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chairman. Thank you to both the witnesses. Mr. Dukes, if I may, I want to go through your opening statement just to get clarifications on a couple of items in it. On page 3 of your opening statement, you talk about the actions that you had to take ... by the board immediately following the nationalisation in January '09 and the first thing is an immediate review of the bank's provisioning policy, which led to at the end of March, the conclusion that the recapitalisation required at that point was €4.5 billion rather than the €1.5 billion estimated by the Department of Finance in January. So why was there a difference in that short period of time?
Mr. Alan Dukes:
We had looked, as I've said, at the provisioning and if I can just give you an example. On the provisions for impairment, just basically what we are talking about here, in the report for the year ended 30 September 2008, the total provision for impairment of those accounts was €879 million, which had been presented rightly at the time as the largest impairment provision that any Irish bank had ever made. For the accounts for the 15 months ending 31 December 2009, the provision for impairment was €15.1 billion and, you'll recall, during the course of 2009, we changed the accounting year for the bank. It had been, you know, October to September and we adjusted it to be a full year so we did a 15-months accounting at the end of December but the provision for impairment on loans over those 15 months was €15 billion compared to €879 million for the year... the accounting year immediately preceding that and that was directly as a result of working back into the bank's balance sheet, the information that we had about the decline in property prices.
Eoghan Murphy (Dublin South East, Fine Gael)
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But January to March ... that difference ... Finance has a figure of €1.5 billion it's estimating in January and in March you have it at €4.5 billion.
Eoghan Murphy (Dublin South East, Fine Gael)
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Am I right that Finance didn't believe your numbers? Did they have an external review done as well? Is that-----
Mr. Alan Dukes:
I'm not saying they didn't believe our numbers. They were shocked. It was a huge surprise to them, a most unwelcome surprise, and, as I said, we had commissioned two experts to do a study of our methodology and we had done an internal review of the provisioning policy. The Department of Finance, after we had given them that particular piece of bad news, commissioned, I think it was, PwC to look at the same material we had looked at and they came to broadly the same conclusion on the basis of market information as it was then.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay, moving on then-----
Mr. Alan Dukes:
But, as I've said - I'm sorry to interrupt you - the information we had about the market was that market prices had been going down from September to December of 2008 but there was an acceleration of the ... the rate of decline from January through the first quarter into the second quarter of 2009.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay, thank you. I just want to move on then to another thing that you had to do following nationalisation, which is the restructuring plan in September '09. You did two plans and you worked with them in conjunction with the Department of Finance, the Central Bank and the NTMA and both plans were rejected by the EC and you say "It subsequently emerged that the Department of Finance had not supported the plan in [their] discussions with the EC" and I think this was unique amongst member states in support programmes, as you point out. Can you explain to me what's happening there and why you're not getting the support from the Department of Finance who've agreed this restructuring plan with you?
Mr. Alan Dukes:
I honestly don't know and, in fact, that came to our knowledge because the Department inadvertently released to us a document which was prepared for some official who was making a statement about the whole thing and this was a kind of a prompt sheet for dealing with questions and answers and it included the point that the Department, of course, had not supported the May 2010 plan that we had put together. The Department were very embarrassed by that and they, they decided to take that piece out of the document but it had already been said. But it was a difficult time. When we had to do the second restructuring plan, and I don't know why the Commission turned down the first one, we were never told the full detail of that, during the second one, it took quite a long time for us to get engagement from the Central Bank and the Department in doing the plan, and the NTMA.
At a very late stage in putting that plan together, the Central Bank came along with another twist which was difficult to include in the plan but from recollection, I think it's ... I've referred to it in the statement ... there was only one occasion when anybody from the bank was involved in any engagement with the European Commission about the restructuring plan. I found out subsequently, in conversation with a senior Commission official, that other countries that were presenting restructuring plans for their banks brought the banks along to the discussion with the Commission. Personally, I think it would have helped us ... second ... certainly, the second time around and, clearly, the third time around if we had been involved in the discussion with the Commission so that we knew what kind of expectation they had in terms of restructuring.
Eoghan Murphy (Dublin South East, Fine Gael)
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Why would the Department agree the plan with you - the second plan - and then not support it?
Eoghan Murphy (Dublin South East, Fine Gael)
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Did you ask the Department? Did you go to the Department and say, "What's happening here?"
Eoghan Murphy (Dublin South East, Fine Gael)
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Did you see it as a breach of good faith?
Eoghan Murphy (Dublin South East, Fine Gael)
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They apologised for the offending document, not for the action?
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. I want to move on, if I may then, to a document you supplied in your opening statement - the first document you supplied - which is bullet points for, I think it's John Moran's meeting with the board in May 2011 and I don't know if we can get that up on the screen, Chair. Thanks. A number of bullets points there but the second, kind of, section of the document is, "D. Fin/NTMA, influence has slowed down adjustment process", and a series of bullets. The first one:
- Indecision on restructuring policy approach (now on version 4, still undecided).
- Sep. 2010 “funding bank + recovery bank” proposal never made any sense.
[down to the bottom bullet point]
- Official demand for external validation of Bank analyses and proposals has simply increased expenditure on external consultancies...
At the bottom of the page, "The moral of the story: get them off our backs and things will happen faster, better." Can you just explain for me what that means? And the second question is: was the way in which the Department was engaging with you costing you more money and costing the State more money, ultimately?
Mr. Alan Dukes:
Well, the point I made is that things were taking longer to get done because the NTMA and the Department were slow in arriving at decisions. If you look at the second section of the document there, the third bullet point, the bank's original liquidity management exercise in 2009, which was burning the subordinated bondholders ... our original proposal was considered too aggressive by the Department so-----
Eoghan Murphy (Dublin South East, Fine Gael)
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And you mentioned that in your opening statement as well and I wanted to come to it. I mean, could you elaborate on that, please?
Mr. Alan Dukes:
Well, we were proposing that we would pay subordinated bondholders somewhere in the twenties per cent. The NTMA reckoned that that was too aggressive and we ended up paying somewhere in the thirties per cent - I have the exact figures somewhere but I can't quite recall them at the moment - which meant that instead of saving somewhere over €2.2 billion, we saved €1.8 billion on that exercise. In 2010, we proposed another exercise to cram down subordinated bondholders and it took almost six months to get agreement of the authorities to do it. That was a more aggressive one.
Eoghan Murphy (Dublin South East, Fine Gael)
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I don't understand "too aggressive" though. I mean, what does that mean?
Eoghan Murphy (Dublin South East, Fine Gael)
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Why would the Department or anyone else want to go more softly then on ... in terms of this exercise? What would be the benefit?
Eoghan Murphy (Dublin South East, Fine Gael)
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And staying with you, Mr. Dukes, but looking at the statement from Mr. Aynsley, if I may, we've had the Wright report into the Department of Finance in 2010 which came through with a series of recommendations. They were all reviewed for the public accounts committee and gone through with the Secretary General at the time and we've had the other various reports talking about failings in the Department of Finance and the move now to rectify them post-crisis.
But if we look at Mr. Aynsley's statement ... on page 2, he talks about a skills gap in the Department of Finance; on page 3, "ongoing lack of banking knowledge and experience in the Department of Finance"; on page 4, "It appeared increasingly to be driven by political considerations"; and then, on page 7, we have a resignation letter from the CFO, "The authorities are stuck in their old ways. They do not recognise nor understand conflicts of interest." So, in terms of the Department of Finance, as you understand it, and as you have dealt with it until very recently, have you seen any significant change over the Department of Finance that was there prior to the crisis, which was criticised so heavily in things like the Wright report and the Nyberg report?
Mr. Alan Dukes:
No, frankly. We found, as I ... that note that you referred to in the beginning, that was a note I prepared for my own guidance in chairing the meeting with Mr. Moran in May of 2011. It set out areas where I felt that the interaction between the bank and the Department was not producing the kind of result that it might have. For example, I think we were more aggressive ... we were more constructive about restructuring Arnotts, for example, than the Department would have been and we consulted them about that because that was an area that we thought might be an area of public interest ... you know, an iconic department store in a sensitive part of Dublin ... you know, there might be considerations to be taken into account but NTMA was nervous about the kind of deal we were doing. And the same, there was another deal ... a Champion deal, which NTMA was nervous about but which we went ahead with because it was our commercial judgment that that was in the best interests of the bank. And if you see on the section directly above that ... "Anglo board has real concerns about liability issues". That goes to the heart of the way the relationship worked. I felt at that time that we had to make it clear that the ultimate responsibility for what happened in the bank rested with the board and not with the NTMA or the Department of Finance and that it was the board's necks that were on the line for decisions that were made and we couldn't legally or prudently leave too many of those decisions to be made by other people, whose concerns were not, maybe, as informed by the realities of commercial life as ours were. We found, from time to time, in discussions with the Department, that they raised questions, which was a legitimate thing to do, but some of the questions were extremely naive. And as I said earlier on, we were never entirely sure just how far up in the Department the responses percolated and we found, from time to time, that it seemed to be difficult to come to a conclusion on an issue with the Department. The Department would raise a series of questions, legitimately, about a particular set of activities or whatever. We would sit down with them, explain it all, go through it all and they would ... we'd end the meeting and it would appear that that was concluded. And, a couple of months later, they would come back to us with the same set of questions, so it seemed to be difficult to be sure that we had concluded on an issue with the Department. I could go further about particular issues that I'm not allowed speak about here-----
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you. Thank you, Chair.
Ciarán Lynch (Cork South Central, Labour)
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Thank you. Next questioner is Deputy Joe Higgins. Deputy Higgins, ten minutes.
Joe Higgins (Dublin West, Socialist Party)
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Mr. Dukes, just in relation to what you said were aggressive cuts to bondholders that you tried to inflict. Which authorities ... was it national or European were reluctant?
Joe Higgins (Dublin West, Socialist Party)
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Yes.
Joe Higgins (Dublin West, Socialist Party)
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As you know, Mr. Dukes, the whole question of haircuts to bondholders or burning bondholders, so-called, they have been quite a controversial one ... just with the benefit of what you've seen in Anglo would you have a comment on the ... that general issue since the bank guarantee? Do you think that there were opportunities for much more severe haircuts to bondholders rather than taxing the taxpayer with their debts?
Joe Higgins (Dublin West, Socialist Party)
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If you had your own way?
Mr. Alan Dukes:
I would be reluctant to do it because of the effects that it has on your subsequent capacity to borrow, the effects it has on markets. I know there's a great deal of talk about it, and various pop economists talked about the mirth and the joy there was among senior bondholders and champagne corks popping and all that and how they would come back the following day and lend you more money. I think a lot of that is very fanciful. If you look at the experiences of countries where senior bondholders have been burned, I don't think you can conclude that it's an exercise that doesn't have very serious costs involved in it.
Joe Higgins (Dublin West, Socialist Party)
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Okay. And, Mr. Dukes, you were public interest director when Anglo was nationalised in January of 2008. What was the total loan book at that time, can you remember?
Joe Higgins (Dublin West, Socialist Party)
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Okay. So then, €33.9 billion was transferred to NAMA. I think that's the correct figure.
Joe Higgins (Dublin West, Socialist Party)
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So, leaving about €40 billion with Anglo. Would that be correct?
Joe Higgins (Dublin West, Socialist Party)
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Okay. What was the ... can you say that there was a profile of the customers that remained with Anglo at that stage? I mean, the big developers had gone. What was the general profile of those who remained?
Mr. Alan Dukes:
Oh, there was quite a variety. There were still a number of very large borrowers left, some with fully performing loans, others with loans that were less than fully performing but, you know, where something was happening. And I think it's fair to say that not all of the distressed loans were transferred to NAMA. There was also, to the best of my recollection - and I'm open to correction on this - I think there was a lower limit on the exposures that would be transferred to NAMA. There was a figure below which the loans would not be transferred to NAMA.
Joe Higgins (Dublin West, Socialist Party)
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Yes And you both then spoke about, you know, various dates that had been set for the wind-down of the bank - 2020 perhaps and then 2016. Was it at any stage considered whether there was the possibility of turning this bank around and making a good bank of it?
Mr. Alan Dukes:
Yes. In fact, both the first and the second restructuring plans were done on the basis that the bank would be a going concern. The May 2010 restructuring plan separated ... proposed to separate it into a good bank and a bad bank and, if memory serves me correctly, I think we were looking at an outstanding loans base of somewhere in the region of €15 billion at that point, but the European Commission decided at that stage that the bank ... it could no longer be treated as being prospectively a functioning bank into the future.
Joe Higgins (Dublin West, Socialist Party)
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Right.
Joe Higgins (Dublin West, Socialist Party)
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Okay. Did you believe that it was possible, Mr. Aynsley, to take the bank forward on a different basis?
Mr. Mike Aynsley:
It depends at what time you're talking about, like all of these things. And I think what Mr. Dukes says is 100% valid. One way of looking at this is if you think of the discussion we had earlier around the systemic importance of Anglo. One of the reasons was the level of deposits that it had, both domestic but largely international. So, if you go back to September 2008, their customer accounts liabilities were running about €52 billion; March 2009, they'd dropped to €34 billion; December 2009, €28 billion; by the time we got to December 2010, they were down to €11 billion. So, what you had ... two things happening. You had a flight of deposits out of the country, and this was just not impacting on Anglo, it was impacting on every Irish bank, and that was the reason why you saw this very substantial growth in ECB funding.
Joe Higgins (Dublin West, Socialist Party)
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Right, okay.
Joe Higgins (Dublin West, Socialist Party)
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Yes.
Mr. Mike Aynsley:
So Anglo found itself in a situation where the asset values were falling, and falling dramatically. There was very little asset portfolio left that you could use, at the end of the day, to centre-post a new good bank. And even if you argued that, well, perhaps it was big enough to create a small business bank, the funding issue was a large one. Deposits were still leaving the country and this is why one of the reasons was taken to structure up quickly this funding bank structure to take the deposits that were left out of Anglo and put them with an institution, AIB, that could use those to support its business as one of the pillar banks going forward.
Joe Higgins (Dublin West, Socialist Party)
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Okay. Mr. Dukes, you note in your statement that one of the board's urgent key tasks was the identification of a series of legacy issues. Could you, please, provide an insight into the legacy issues identified in the context of lending and recovery policies and risk assessment and appetite?
Mr. Alan Dukes:
Well, they're all separate categories. The legacy issues ... I think broadly I'd characterised those as the issues that were identified and taken up by the Office of the Director of Corporate Enforcement and the Garda Bureau of Fraud Investigation, who started their investigation in February of 2009. There was a whole series of outstanding issues there, some of which are still subject to litigation, but they were, if you like ... and I think I can use the phrase, colloquially, "the sins of the past" that needed to be examined and have people held to account for them-----
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Ciarán Lynch (Cork South Central, Labour)
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If you could refrain from the sins of the past and maybe give us a better analogy that may not be so judgmental.
Ciarán Lynch (Cork South Central, Labour)
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Okay, perfect.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. That's it. Drive on.
Joe Higgins (Dublin West, Socialist Party)
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Okay. Gentlemen, the ... you were under pressure from the euro system to sell off the assets so the banks had money to pay back to the ECB as I understand it. Did you feel you were under political pressure from the State or from the Government for any political reasons to advance sales more quickly?
Mr. Alan Dukes:
No, not specifically. As I said, a wind-down programme was agreed in the early part of 2011, which we over-fulfilled. From time to time after that, there were people in the Department of Finance seeking to encourage us to wind the bank down faster, which we did not think was always that wise, and we felt that as long as we stayed within the objectives of the wind-down targets that we had proposed and we took opportunistically other opportunities to dispose of assets at what we regarded as a reasonable price, that we would do so.
Joe Higgins (Dublin West, Socialist Party)
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And, lastly, Mr. Dukes, this is to yourself. The appropriateness of the relationships between the Government, the Oireachtas, the banking sector and the property sector and in your written statement you say, "This issue has been a rich source of modern mythology." Considering the history of tribunals which have shown relationships between political parties, politicians, developers and then a perceived closeness between some parties or politicians and big developers, do you think that that might merit a more considered response?
Mr. Alan Dukes:
I considered that response very carefully. You use the word "perceived" which, I think, is an appropriate word in this case. I mean, I think there is a fact that is hugely overlooked in some of this discussion, and that is that for many, many years the construction sector in Ireland has persuaded all political parties, not just Fianna Fáil but Fine Gael and the Labour Party and, I think, others that ... on the basic proposition that they make that construction is good for the economy.
I've always thought that that is the wrong causation. A strong economy is good for construction and I think that an over-reliance on construction as a motor of growth has turned out, in our case and indeed in other economies, to be a very bad idea.
There is frequent comment to the effect that there are, kind of, cosy cartels between bankers and politicians and all the rest. My observation, both in politics and out of it, in dealing with bankers is that, by and large, they prefer to stay as far away from politicians as they can. I think until 2008, most of them thought they knew more about what was healthy for the country than the politicians did and I think they found out that they don't necessarily.
Again, in relation to developers it's frequently alleged that developers are more friendly to one particular party than another. Frankly, my experience has been that they're very, very flexible as to who they support. I think the whole political system probably pays too much attention to them than they actually deserve. So, I mean, that's where I think the mythology comes in.
Ciarán Lynch (Cork South Central, Labour)
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Right, thank you. Senator Susan O'Keeffe. Senator.
Susan O'Keeffe (Labour)
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Mr. Aynsley, in your opinion, was the decision to liquidate the bank something that had been the ultimate objective all along?
Mr. Mike Aynsley:
No, I don't think so. The initial discussions I had prior to joining the bank and then after I joined the bank with the Minister for Finance, the late Brian Lenihan, were very much along the lines that the preference the State had at that point was to repair the banking system, repair Anglo. It was in the early days and they believed that Anglo would remain as a systemic part of the financial sector. So, the view was to convert the stub of the bank or not the stub of the bank or the cleaned up entity into a bank that focused more broadly on business banking and SME banking. But, you know, as I said, as the markets developed and deteriorated, it ended up not being possible. So, I think then it became a matter of how do you move it to ultimate resolution and in what timeframe and that was really the subject of the ultimate pieces of work that resulted in the final plan and subsequent liquidation.
Susan O'Keeffe (Labour)
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Before I turn to the Department of Finance, can I just ask you, Mr. Aynsley, we've heard evidence about how difficult it was to get good evidence or good knowledge about the state of the banks in September 2008, particularly in relation to Anglo? Would it have been possible to have had information at least about the level of personal guarantees, the concentrations in various sectors and so on? Would that information have been easily found or was it in fact-----
Susan O'Keeffe (Labour)
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-----a job for real experts to spend real time on?
Susan O'Keeffe (Labour)
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Why is that? Is that true of all banks or was it just true because of the convoluted-----
Susan O'Keeffe (Labour)
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No, and I'm not asking you to.
Mr. Mike Aynsley:
Every bank has computer systems within which they store data. They complete a transaction, they store the data and that data changes as interest rates change or maturity dates happen and get reset, etc. But, it also records security data and any other number of aspects of a transaction. What we found was that they were in such a hurry to transact business and write new business that they had put a minimum amount of information into the computer systems. So, it then becomes a matter of going back, file by file, back to the original documents, original files, and rebuilding that over time. That is, again, one of the enormous pieces of work that needed to be done, just so we knew where we were because in the absence of a .... I mean a lot of its guarantees were worthless but there were some that were worthwhile. But if they weren't on the system and you didn't know they were there, you really didn't have a solid basis to value the loans. So, it kept on coming back to a process of revisiting the original loan documents and rebuilding that data from the ground up.
To answer your question, back in '08, if somebody walked in and said "we need to do a quick look at this portfolio and see its real health", it would have been very difficult to do that.
Susan O'Keeffe (Labour)
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Does that mean also, Mr. Aynsley, that for the bank executive, was it also difficult for them if it was piling one on top of the other? Would they equally have been losing track of their own system if it was not adequate?
Mr. Mike Aynsley:
Well, I think, yes. The processes they had in place are different than certainly what I have been used to throughout my career because, you know, there is no substitute for a fact base of information. It seemed that a lot of the information relied on reports that were provided by the relationship managers who were dealing with the clients day-to-day, and they would make assumptions and put forward reports and then they were rolled up to the next level. The information just wasn't built off a solid fact base.
Mr. Alan Dukes:
Chairman, could I just add one or two reflections to that as a kind of a non-banker? As I said earlier on, the information was there about the concentration of risk by sector, and by borrower, and it was there available to the regulatory authorities.
The second point I would make is that I think this was common cause for most of the banks. If they were asked about their loan exposures in the property sector they would have said, and probably would have believed, that they operated a 70% loan-to-value ratio. On deeper examination I found, and this is making it very broad - this is broad brush kind of stuff - if you really examined their loan books, and tracked through individual borrowers, you would find that in a number of cases, and a not insignificant number of cases, the 30% equity that was supposed to go with this 70% loan-to-value ratio was borrowed funding either from the one bank or from another bank and brought in as equity to support a loan. So that, in fact, the concentration by sector and by borrower was actually exacerbated by the loan-to-value ratios that actually existed in real terms. The first two parts of that were information - if you like, gross level information - that was available to regulators and that should have set off alarm bells. Regulators should have said "Stop, you are over concentrated." The last bit of it was much more difficult to find out and that was partly related to the design of the bank systems and the kinds of things that Mr. Aynsley has been talking about.
Susan O'Keeffe (Labour)
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Thank you. Mr. Aynsley, can you recall whether there was a level of borrowings by the actual directors of the banks? I do not suppose there is a sort of-----
Ciarán Lynch (Cork South Central, Labour)
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No-----
Susan O'Keeffe (Labour)
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I am not asking at all-----
Ciarán Lynch (Cork South Central, Labour)
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I need to ask the witnesses to be on notice as well.
Susan O'Keeffe (Labour)
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It is a collective question. What I am just trying to establish is whether or not that level was higher or lower than any other experience you'd had, just in the broad sense. That is all I am asking. Was it higher or lower?
Ciarán Lynch (Cork South Central, Labour)
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We must be very guarded here with regard to directors' loans.
Mr. Mike Aynsley:
Some banks have a blanket policy and in fact we in the new Anglo adopted this which was no more direct loans. We barred director loans post-nationalisation. Others will allow them in a normal retail banking business. You know, universal banks that provide loans for mortgages or normal personal loans. You know, directors subsequently or since they become a director of a bank they may maintain normal banking relationships. Others it ceases and moves on to another bank.
Susan O'Keeffe (Labour)
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Mr. Dukes, if I may, you included in ADU-0002, it was the document, the letter that you wrote to Mr. Moran in 2011, where you talked about the decision to appoint another set of advisers - McKinsey. You said that was the Department's decision and one which has "retarded the bank's process and has added little value". You go on to say, "The McKinsey team, none of whom appear to have any real depth of experience of banking, seemed unaccountably to be unaware of the very elementary proposition that the risk function in a bank should be separated from the finance function."
What had happened here that these advisers had been put in and what happened to the original advisers, Bain and Co, that the bank had appointed?
Susan O'Keeffe (Labour)
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Were they removed?
Susan O'Keeffe (Labour)
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Yes, but you were asked to remove them, weren't you?
Susan O'Keeffe (Labour)
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You say, the bank should dispense with the services-----
Mr. Alan Dukes:
Perhaps that was suggested, yes. But, I mean, I think the central point I was making there was that the Department, for its own reasons, decided to hire McKinsey to do a piece of work. We were never told about it and I was annoyed by the fact that not only had the Department appointed McKinsey to do this work on their behalf but they had the grace to inform us that we were going to have to pay the bill for McKinseys. Frankly, I wasn't at all impressed with the people I met who were carrying out that and I think the same could be said of other people, and I was absolutely astounded when I was told. We never saw the report, incidentally.
Susan O'Keeffe (Labour)
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But why would the Department of Finance choose to put in, never mind the quality of them, but why would they choose to do that?
Susan O'Keeffe (Labour)
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But did they never say to you, look, you know, we have our own-----
Ciarán Lynch (Cork South Central, Labour)
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Be careful Mr. Dukes.
Mr. Alan Dukes:
It was a proposal that flew in the face of every common concept of how to run a bank properly and the proof is there that ... the Nyberg report quotes that as one of the serious deficiencies in the old Anglo and here was the Department of Finance endorsing a proposal from another outlet, that we were going have to pay for, to do something stupid.
Susan O'Keeffe (Labour)
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Finally, if I may-----
Susan O'Keeffe (Labour)
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No, I get that. I get it.
Mr. Aynsley, in relation to the concerns that were discussed previously by other members on page 15, did you, on foot of what had happened there, did you ask to speak to anybody else in the Department of Finance? Did you ask to speak to the Minister for Finance? What did you do on foot of those ... because I know you've said that there is a trail of e-mails to support that part of what you've discussed but I'm asking ... you clearly were concerned about what happened, so what did you do?
Mr. Mike Aynsley:
I raised it ... raised it with the chairman but bear in mind, this is at the death of the bank, the death of the management team of the board. This is, like, January 2013, so 7 February was the point of liquidation, so I could only speculate, I guess, on where we would have gone next with that but it was definitely actioned. I can't talk about the action.
Susan O'Keeffe (Labour)
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I understand that.
Ciarán Lynch (Cork South Central, Labour)
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Senator, I need you to wrap up now.
Susan O'Keeffe (Labour)
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Yes, and finally, I mean, effectively, you have noted that the relationship was governed by the so-called relationship framework, the RF. Do you believe that in your tenure there, was that relationship framework breached in any way, specifically? I mean, given all the concerns and they're in ... they're noted here ... was it actually breached?
Mr. Mike Aynsley:
No. No, I don't believe so, at any time. I mean, we were accused of, of breaching it at one point after the new one came in, you know, the new one made it very clear on what you need to notify the Department or the Minister of, what you need to consult the Minister on and what you need to do to seek consent. And I recall, probably the first week, there was a notification requirement so we notified and the next thing ... you know, notified, executed what we were doing and the next thing we get a letter of ... expressing difficulty with our decision because we hadn't asked them whether we could do it.
Susan O'Keeffe (Labour)
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Was it breached by the Department of Finance, though?
Susan O'Keeffe (Labour)
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Was it breached by the ... I mean, it was a relationship between-----
Susan O'Keeffe (Labour)
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----- the two sides. Was it breached by them at all in their actions towards the bank? That's what I was trying to get at..
Ciarán Lynch (Cork South Central, Labour)
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Sorry, Senator, I must ask you to wrap up.
Susan O'Keeffe (Labour)
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That's what I was trying to get at. Given the ... no, in fairness, Chair, I did ask the question. You said ... in relation to the observations you made about the Department of Finance, do you believe that the relationship framework was, at any time, breached by the Department of Finance in relation to you?
Mr. Mike Aynsley:
I don't think so. It's close. I think ... I think it could have been if we'd let it. I think, you know, there was ... and that was part of the conflict ... there was this ongoing push-back because of the recognition that there were very many conflicting elements that needed to be considered and, you know, if we'd conducted certain activities in conjunction with the Department of Finance, it may have had a direct impact and caused a default and accelerated and created a cessation of business risk for us ... or an event. So, you know, we had to push back on many, many things. So, I think the answer is "No, there wasn't", but there could have been.
Mr. Alan Dukes:
I think, Chairman, the document ... the two relationship frameworks are probably in the committee's briefing notes. If you have time and patience, read through them. They're not pellucidly clear and discussion along the second one went through 29 different drafts - becoming increasingly bureaucratic as they went through - and it was resolved finally when our chief executive officer lost patience with the whole process and he said "Why don't we refer this to the two sets of legal advisers?". They looked at it and came back with a much more workable draft in the space of a few days.
Susan O'Keeffe (Labour)
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Thank you. Thank you, Chair.
Ciarán Lynch (Cork South Central, Labour)
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Senator Sean Barrett.
Sean Barrett (Independent)
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Thank you and welcome to our two visitors. Mr. Aynsley, first, if I may, you say on page 16 "When I arrived in Ireland in September 2009 there was still little appreciation of the scale of damage done by the pre nationalisation Bank Management". And could you describe the prevailing culture you encountered on your arrival in Anglo in September '09?
Mr. Mike Aynsley:
I think ... I started to say earlier, I mean, one of the things I recall when I came in ... within the first week; I don't think there was one member of the management team ... the old management team that were still there didn't walk in and ask for an audience and start talking through what they'd done and within the first 15 minutes put their hands up to say "Well, you know, of course, well I didn't do anything wrong throughout this whole process". In those days, the discussions around the loan portfolio ... it's not really, you know, "We've got a better loan portfolio than anyone else. The other banks have followed us and they've pushed this harder than us after the fact". There was a denial, I think, about the quality of the loan portfolios. There just wasn't an acceptance that this was a particularly serious situation. This was a fair way in. This was September ... August-September 2009. And I'd say that the culture of denial about what had gone on and what was still unfolding was probably the thing that struck me the most.
Sean Barrett (Independent)
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Yes, because it was going on for about a year at least at this stage. So it's-----
Mr. Mike Aynsley:
But, of course, you know, the business ... at that stage, you were seeing a flight of deposits out of the country but not compared to what we were going to see. You had seen the market fall significantly and I spoke at the beginning about the expectation at that ... middle of the year there was a 20% haircut on NAMA assets, by year end it was 30, it ended up being 58 overall. Just the extent of what was unfolding hadn't really struck a lot of people. And bear in mind, a lot of people hadn't ... in Ireland ... hadn't been through this type of crisis and no one really in major jurisdictions had seen the extent of what was going to happen.
Sean Barrett (Independent)
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Some of the witnesses - and one has to say on the borrowing side - presented an image of a most meticulous bank with all sorts of detailed document, much more rigorous and difficult to borrow from than any other bank they'd ever experienced. Did you find that from the inside when you went there in September '09?
Sean Barrett (Independent)
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Thank you and if I might turn to your colleague, Mr. Dukes. Did Anglo-IBRC ever receive a direction from the regulator as a result of non-compliance with the terms of the Credit Institutions (Financial Support) Scheme 2008 to conduct its business so as to reduce the risk to the Exchequer under the guarantee?
Sean Barrett (Independent)
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Now, on your page 9, you say on regulation, "My personal view is that simple, clear and even brutal rules with a minimum of exceptions are to be preferred to complex, detailed rules with numerous exceptions." Could you describe for us the Alan Dukes model of simple, clear, brutal bank regulation and what would be in it, because we will have to address that, obviously, as we come to the end of our work?
Mr. Alan Dukes:
Yes. To give an example, it has taken a long, long discussion in the United States to get something apparently simple like the Volcker rule implemented. I'm sure the Senator is familiar with this. It was decided I think four years ago and it only came into operation this year with great reluctance on the part of the banks. And I think that rule, if it were rigorously applied to banking systems through the world, would actually reduce the complexity of regulation because it just takes a whole area of activity away from the proper activities of investment banks.
That particular statement represents what I suppose you would call a prejudice about it. I've been looking at detailed regulation of various kinds since 1967 and I find both in various customs regulation, in tax law and in banking regulation, the more detailed the rules you have, the more the incentive is there and the more the opportunity is there to find a way around the rules. Now, detailed rules give rise to detailed avoidance procedures. Simple rules are much more easily implemented and I think, you know, there is a big discussion here around the question of what do we want the banking and financial system to do for the real economy. And I think the answer to that is something much simpler than they do today. So, let's have simple statements and simple rules.
Sean Barrett (Independent)
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Thank you. And, Mr. Aynsley, Canada has been referred to a lot at this committee. I think Australia and Singapore would also be places, which ... where bank regulation is admired. Could you give us a brief synopsis of what we might look towards from Australia?
Sean Barrett (Independent)
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He has come a long way.
Ciarán Lynch (Cork South Central, Labour)
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We might go down there for a trip for the month of August.
Sean Barrett (Independent)
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Mr. Aynsley-----
Ciarán Lynch (Cork South Central, Labour)
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I said, Mr. Aynsley we might go down over August. It's not that we don't have enough to do. We will have a look at it, Mr. Aynsley.
Sean Barrett (Independent)
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I mean, what would Australia have done to prevent the situation you walked into on September '09?
Mr. Mike Aynsley:
I think this gets down to making sure that the banking policy and direction of regulation are adequately separated. I think, you know, this is one of the areas I spoke about in my opening. You know, I think, you know, there's evidence here that the areas have been confused and the roles haven't been clear. The regulator hasn't ... pre-rebuilding of the regulator, you know, the regulator wasn't regulating properly and banking policy wasn't clear and banks just seemed to do what they wanted to do. And I think, you know, certainly in Australia the roles are very separate and I think rightly so. I think, you know, there is clarity around what the regulator is doing. There is clarity about the way they supervise the expectations that are levied on the banks and banking policy is not confused by the Government.
Sean Barrett (Independent)
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Thank you very much, both. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Deputy O'Donnell.
Kieran O'Donnell (Limerick City, Fine Gael)
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Thank you, Chairman. Welcome, Mr. Aynsley and Mr. Dukes. Apologies for the delay. How did Anglo - this is for you, Mr. Aynsley - how did Anglo's culture and governance structures compare with other financial institutions with which you would have been previously associated? How did it differ?
Mr. Mike Aynsley:
The ones I have been associated with previously were essentially universal banks or more akin to an AIB or Bank of Ireland, not monoline real estate banks. And, of course, you know, the very much larger institutions are a function of organisations that have evolved over particularly long periods of time and have activity that's a lot more represented in every sector of the economy.
And with these organisations, you get bureaucracy and you get structure-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Well, if you were, we'll say-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----if you were to distil it down, we'll say-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----Anglo's loan book-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----between 2004 and 2007 went up threefold.
Ciarán Lynch (Cork South Central, Labour)
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You've a bit of phone interference there, Deputy.
Kieran O'Donnell (Limerick City, Fine Gael)
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No, it's not mine.
Ciarán Lynch (Cork South Central, Labour)
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Yes, that's fair enough.
Kieran O'Donnell (Limerick City, Fine Gael)
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And what's ... if you were to identify what were the weaknesses within this structure - the governance structures, the processing structures within Anglo - that gave rise to-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----that level of growth in ... in ... in purely property-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----based-----
Kieran O'Donnell (Limerick City, Fine Gael)
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So were they going in different directions?
Kieran O'Donnell (Limerick City, Fine Gael)
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Was growth going up and risk effectively-----
Mr. Mike Aynsley:
Yes, you know, the ... the growth of the books relative to the risk involved in growing them and the risk that's manifesting in the economy itself and how that affects the organisation. And with ... at Anglo, the funding structures, you know, highly reliant on very short funding of assets for a ... extended period of time and the access to global sources that could continue to provide it. So it's sort of like a ... a false belief that you're always going to be able to fund anything, so you just go out and lend. And providing you're lending at a higher rate in a rising market, you're not going to see delinquencies and losses as markets rise and-----
Kieran O'Donnell (Limerick City, Fine Gael)
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So was it all based ... was it predominantly based around capital growth?
Kieran O'Donnell (Limerick City, Fine Gael)
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When I say capital ... the growth in asset value, was there-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----did hey drive their loan book on-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----on the premise that-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----the price of property was ... asset values were going up?
Kieran O'Donnell (Limerick City, Fine Gael)
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Fine.
Kieran O'Donnell (Limerick City, Fine Gael)
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Rather than underpinned by, we'll say, a sustainable income stream.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. Can I ... can I move on?
Mr. Mike Aynsley:
Although some would say, you know, a sustainable income stream ... income streams can be sustained for a ... a very, very long time. All right, you know, you had a 16-year bull market before this thing turned over and, you know, there are people that've grown up in that industry that haven't seen anything else and, you know-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Well, again, can I ask a quick-----
Kieran O'Donnell (Limerick City, Fine Gael)
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If we hadn't had a bank crash here-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----would Anglo have still ended up on the rocks?
Kieran O'Donnell (Limerick City, Fine Gael)
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I suppose-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----was the Anglo model unsustainable?
Kieran O'Donnell (Limerick City, Fine Gael)
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Can I just go back? Page 14 of your statement, Mr. Aynsley, and the second last paragraph, you speak about "A number of accusations have been made alleging that I, as CEO, and others in the Bank's Executive team [had] close relationships and provided private commitments to certain named key customers."
Kieran O'Donnell (Limerick City, Fine Gael)
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Can you tell me how did you manage ... what was your policy in terms of managing relationships with clients? And just can you expand on ... on that particular accusation?
Mr. Mike Aynsley:
Well, I think we're ...you know, we were ... we have a code of ... or we, sorry, we developed a code of conduct, there wasn't a document there previously. One of the first things we did was put a code of conduct in place, which is a board-approved document that goes through, you know, all of the aspects that you'd expect, including hospitality and ... and these sorts of things.
Kieran O'Donnell (Limerick City, Fine Gael)
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Well, did you ... did you ... did you-----
Mr. Mike Aynsley:
So what I was referring to here was ... as you know, and I, you know, I suspect it was either perhaps even you who questioned me at one of the Oireachtas committees, you know, about, you know, texts that were flying back and forth with Paddy McKillen, you know, and I think I ... I covered off that on that then. And I don't think there's, you know, anything untoward in the way we ever managed our ... our clients. You know, dealing with large clients requires careful management. You know, we managed through a structure and a process in the organisation that ... that required contact to be undertaken at the relationship management level and carefully managed at all levels.
Kieran O'Donnell (Limerick City, Fine Gael)
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And would that have involved, we'll say, going ... going to meals-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----dining out? Would you regard that as a normal feature of managing a relationship or would you say that should be done in the ... in the office?
Mr. Mike Aynsley:
Yes ... you know ... no, I think it is in certain circumstances and it's an accepted form, not only in banking but in many industries. People that do business together, you know, from time to time they'll get together and they'll have a meal. We had policies in place to make sure that this wasn't excessive. You know, I for example, I think I said in my statement I can count on, you know, two hands over three and a half years the number of lunches and dinners I had with clients and I have to say, you know, always in the company of a relationship manager, someone else from the bank.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. Can I ask, Mr. Dukes, the distrust between the Department of Finance and Anglo, was it personality driven or was it policy driven?
Kieran O'Donnell (Limerick City, Fine Gael)
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And you might just clarify the relationship framework, your letter here to Mr. Moran was dated 6 October 2011.
Kieran O'Donnell (Limerick City, Fine Gael)
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When was the revised relationship framework, when was it actually put in place?
Kieran O'Donnell (Limerick City, Fine Gael)
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And why did it take the bones of six months to put a revised one in place?
Kieran O'Donnell (Limerick City, Fine Gael)
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But did you not go into a room and say, you know, "let's do business"?
Mr. Alan Dukes:
That's what we would've liked to do. In fact, if you look at the documentation you'll find that I think I had sent to the Department some time in advance of the opening of those discussions a draft relationship framework, which they found far too light. But the problem was that it was very difficult to find out where to draw a line between the independence of the bank and the right or the inclination of the Department/Minister to intervene.
Kieran O'Donnell (Limerick City, Fine Gael)
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I suppose the question I'm asking is, did personality clashes become more of a feature of the relationship than policy clashes?
Mr. Alan Dukes:
I don't think ... if there hadn't been policy clashes, there wouldn't have been personality clashes, I'll put it that way. But, I mean, just to give one example of where the difficulty was, the Department was always keen to ensure a flow of information from the bank, which they got - they got it in spades. But in some of the drafts, for example of the relationship framework, if the Department wanted information it had to be supplied on the spot. If the Department was required to give a response, they had seven days or ten days or whatever to reply, which was very uneven. In some cases it was not at all unusual for the bank to say, "here is an issue, here is something we feel we need to do or we want to do, and we need to do it in the next three days". It was no good to us to have an answer back in ten days time, you know. That didn't seem to register with the Department as an objective difficulty on our part.
Kieran O'Donnell (Limerick City, Fine Gael)
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We had Mary Harney and John Gormley in before us yesterday and they both stated that the late Minister, Brian Lenihan, had indicated to them prior to the nationalisation of Anglo that Anglo was insolvent. So-----
Ciarán Lynch (Cork South Central, Labour)
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I'd much rather when people are quoting witnesses that they actually quote from the text. There's a general assumption that can be taken in that regard, okay?
Kieran O'Donnell (Limerick City, Fine Gael)
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Thank you, Chairman. I haven't had an opportunity to look on the-----
Ciarán Lynch (Cork South Central, Labour)
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I know that. People have been busy.
Kieran O'Donnell (Limerick City, Fine Gael)
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And, really, I suppose, what would be your view on that particular point expressed by both?
Mr. Alan Dukes:
Well, I addressed that in my opening statement. I can't be sure. The problem, as presented to the Government, as I understand it, in September of 2008 was a problem of liquidity in the banks. I think I said in my opening statement the question is: were the banks or was Anglo insolvent at the time? This is a pure guess, I have no scientific basis for saying it, but I think, you know, this is probably not too far from reality.
At the actual point at which the guarantee was given, I think it was probably the case that technically Anglo was solvent because the real damage to the asset values happened sometime after that, fairly quickly after that, and certainly from January 2009 on. But I would think that had the kind of examination that Senator O'Keeffe was talking about earlier on ... had that been done in advance of the bank guarantee I think the probability is that Anglo would still have been solvent at that point and I think the other banks would have been solvent by a bigger margin, if you like, at that point.
Kieran O'Donnell (Limerick City, Fine Gael)
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In substance, do you think, it was-----
Ciarán Lynch (Cork South Central, Labour)
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Final question now Deputy.
Kieran O'Donnell (Limerick City, Fine Gael)
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Well it is ... yes, you said "technically". In substance, was it insolvent?
Mr. Mike Aynsley:
Do you mind if I add to that? You know, if you look at September '08, the organisation had a capital base, equity base of €4.1 billion at that point. And, of course, we know not long after that there was estimates done that said well you know, probably going to need a €1.5 billion of capital. And I think, you know, this is all about where asset values went over a period of time versus where they were perceived to be at that time. So, likely to be solvent, I would suspect.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Aynsley. I am going to move to begin the wrap-up. I'll invite the leads in. I'll ask them to be as concise and as brief and to avoid any repetition of material that's been covered already. If further clarification is needed, of course, we will have to do that. If I could just begin with maybe the same question to the both of you. And Mr. Dukes dealt with some of my latter questioning already, just before we broke earlier. But the general question to the both of you would be: what was your own preference for the future of the bank from among the options identified in the various restructuring plans?
Mr. Alan Dukes:
I think, Chairman, we've been through that. At a point in 2010, we believed that it would still have been possible, as Mike Aynsley has said, to centre-post a continuing bank on the basis of the assets as they were then. Asset deterioration subsequently, I think, made that impossible and, by September of 2010 ... I think it was in September 2010, that we began to look at the reality of the need to wind down the bank.
Ciarán Lynch (Cork South Central, Labour)
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Sure.
Mr. Alan Dukes:
And just to complete the point, it is related to something Senator O'Keeffe raised earlier on. I think - and maybe it's not really useful to say this, but I think it should be said - there is quite a difference between winding down a bank, getting bank into a wind-down position, and liquidating it. If you wind it down, you get to the point where you have satisfied all of the demands of creditors, there is still some base of assets left, there's enough left to deal with the tail risks that are there or else the tail risks are of a magnitude that it's safe to hand over to somebody else without creating a problem. And I think, at the end of the day, that was, if you like, our preference to wind the bank down in that way. As Mike Aynsley has said, from the State financing point of view, other priorities supervened and it became more interesting or more valuable from the State's point of view to liquidate the bank and get the benefit in terms of the easement of the promissory note burden rather than to continue with disposing of the assets.
Ciarán Lynch (Cork South Central, Labour)
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Would you agree with Mr. Dukes's summary or would you like to add anything else to it, Mr. Aynsley?
Mr. Mike Aynsley:
Yes, I would agree with that. I guess the only other thing that like ... I still think, looking back on it - sorry, I still think looking back on it - I think, looking back on it now, even if there had been €12 billion or €15 billion and you could have funded this new entity, I still think it would have been difficult given the perception around the ... the historical perception around Anglo Irish Bank and the name, and the perception around what it had done, right or wrong. And I think that's something that I had no idea of until I came and lived here for a while and everywhere you went, you know, people would say, "Great, really glad you're here, something really needed to be done about that bank, you know, the sooner it's gone the better." Just the level of dislike and the level of hate is something that I had no idea until probably mid-2010.
Ciarán Lynch (Cork South Central, Labour)
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And that lines up the final question for the both of you actually, is ... in your opinions was the decision to liquidate the banks something that had been the ultimate objective all along?
Mr. Mike Aynsley:
No, I think I ... I covered off that one earlier I think. I ... I think originally the extent of ... of what was happening was unclear and the thought of turning it into a ... the beginning of a third force starting with a business bank that was a little bit more diversified and better focused was the thought process. That's where it started from and the liquidation aspect of it came in subsequently, driven by events.
Ciarán Lynch (Cork South Central, Labour)
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All right, okay, thank you. I'm going to wrap-----
Ciarán Lynch (Cork South Central, Labour)
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Yes, Mr. Dukes?
Mr. Alan Dukes:
-----you wonder where the intersection between politics and practicality comes. It was made very clear to me, certainly from an early stage, that the ... that Brussels wanted Anglo gone. There was a great deal of political comment from all sides of the political spectrum from 2010 on and certainly for a period in early 2011 when other things were going on, when people were saying "Yes, get this off the landscape, get rid of it as quickly as possible." But as these things often happen, when people find themselves with the reins in their hands they find the horse is not going to go quite where they thought it was going to go in the first place and that it's maybe better to jump the ditch than to take the gully over the other side of the road.
Ciarán Lynch (Cork South Central, Labour)
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Okay. All right guys, I'm going to move to wrap things up.
Ciarán Lynch (Cork South Central, Labour)
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Sure, yes, yes.
Mr. Mike Aynsley:
Because, I mean, I'm just aware that it is easy to bash Anglo and I just want to make the point that there are a lot of staff that were not involved in these bad practices, if you call them bad practices. And, you know, they deserve, I think, recognition that they worked hard, particularly the ones that have stayed through and helped. And a lot of those were there before in different positions and you know they've worked hard to resolve this bank.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you. I'm moving to wrap things up and if I could ask the Deputies to assist me to be as quickly as possible. Deputy John Paul Phelan.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Always quick, Chairman. Briefly, Mr. Dukes, who told you from European level that Anglo had to be wound up as quickly as possible? Who was that conversation with, can you recall?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Outside of the ... your encounter with Minister Lenihan in Leinster House when you were asked initially to becoming a public interest director, were you giving any ... given any instructions or direction or riding orders as to what your role would be?
Mr. Alan Dukes:
Yes, a briefing was organised in the Department of Finance for Frank Daly and myself with a couple of officials from the Department and a couple of legal advisers, who spoke to us about the normal duties of a director of a company. And then they, kind of, super-posited on that of the duties of a director of a bank. And when I asked what the specific duties of a public interest director were, the conversation got a bit abstract and ... and vague, and quickly came back to the point of saying that, yes, you had a duty to the company and, yes, you had a duty to the shareholder and, yes, you had a duty of care to the employees of the company and you still had to bear the public interest in mind. But where all these things met was never clear.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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It was never really explained?
Mr. Alan Dukes:
I rationalised it to myself and I ... I think other members of the board kind of disagreed with me about this, but, being a simple-minded person, I rationalised it to myself on the basis that I was there to look after the public interest, the shareholder in the bank was the Minister for Finance. The Minister for Finance has a duty to the public interest and in a sense kind of embodies the public interest, so the objectives of the Minister for Finance satisfied the requirements that I look after the public interest.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Simple-minded, I ... I ... I think others would dispute that assessment.
Mr. Aynsley, Senator D'Arcy asked earlier - and I think Mr. Dukes answered - in relation to NAMA, had it done a good job. I don't recall if you had answered that question. If you did, feel free to say you did. But what's your view on NAMA, briefly?
Mr. Mike Aynsley:
Yes, look very briefly, I think, you know, NAMA's had an incredibly difficult job. I am a big believer that the NAMA structure ... whether you call it NAMA or not is another matter, but the NAMA-type structure is very important in cases like this because, you know, one of the key aspects of it is that it crossed all financial institutions in a ... in a country that provided banking facilities to, you know, single borrower groups from multiple entities. And I think it's the only way you can really corral all of these relationships and get them in shape to be resolved. Now, whether they did a good job doing that, I mean, I don't know.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Finally, do you think that your remuneration package, such as it was, which was significantly ahead of the cap that was proposed by the Government ... that it was a cause of the souring, or potentially partly at least, a cause of the souring of relations between the Department of Finance and management in Anglo?
Mr. Mike Aynsley:
Yes. Firstly, let me take issue with the first part which is it wasn't significantly ahead of the cap. It was on the cap. The cap was set under the CIROC guidelines and there were aspects within the CIROC report ... the CIROC guidelines. And my package, which, by the way, I didn't structure, it was offered to me, there were aspects that I negotiated around ... moving here. It was a structure that was arrived at by the bank in conjunction with the Department of Finance and the Minister. And the Minister personally signed off on it on the basis that it complied with all aspects of the CIROC guidelines. Now, you know, the level of these things ... I know this is a lot of money but, you know, there's a market and if you want to bring people to the country to resolve issues, there's a price.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Deputy McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you, Chair. Mr. Dukes, can I ask about the information flow between the bank and the Department of Finance? Under the original relationship framework, which was put in place, I believe, in 2009 ... July 2009, can you clarify when did the practice of sending board packs from the bank to the Department commence?
Mr. Alan Dukes:
I've been trying to get a handle on that for some time. I can say that already in August of 2011, and this is from recollection, I was able to say that the practice of sending board packs and minutes to the Department was already well established by then. Now, that's ... so by early 2011, long before we started talking about a new relationship framework, that practice was in place.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Alan Dukes:
I can't be more specific than that but I can tell you that from 2009, from nationalisation on, when Donal O'Connor was chairman of the bank, I remember saying to him one day - because I worked very closely with him - that I had the impression that he almost told the Department of Finance what he had for breakfast. His orientation was to tell the Department everything so that they knew exactly what was going on.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, but you believe... sorry.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, and earlier than August 2011, in your view? Sometime earlier than that.
Michael McGrath (Cork South Central, Fianna Fail)
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And what would board packs contain?
Michael McGrath (Cork South Central, Fianna Fail)
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Minutes of ... of board committees?
Michael McGrath (Cork South Central, Fianna Fail)
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And would that be all board committees, including the credit committee?
Mr. Alan Dukes:
No, the credit committee was not a board committee. The audit committee, the risk and compliance committee, the nomination and governance committee and the remuneration committee, those were the committees. So, the minutes of all of those ... any of the matters that were being presented for board approval ... and if it was a case, for example, where a transaction was being submitted to the board for approval and we had a threshold for transactions being submitted to the board, it would have contained a complete documentation pack on that transaction, including reports from the credit committee and where it had been through one, a transaction review committee.
Michael McGrath (Cork South Central, Fianna Fail)
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And what was the threshold above which a transaction would come to the board? From memory, if you recall?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And would a transaction normally come to the board for the first time for final sign-off or could there be a series of discussions?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Mr. Alan Dukes:
There were some transactions. Let me give an example. We had a number of assets in the north east of England which were in a fairly distressed position and at a given point we had a report from the UK office about what the condition of that particular group of assets was, with a number of suggestions as to how we might go about prospecting the market to see how that would go. Some time later, another report came back detailing what kind of progress had been made on that and what kind of problems there were with that portfolio. And then, some time later, there would have been a number of specific proposals to the board as to proposals for disposal of assets. And, you know, they were subject to quite a lot of discussion.
And I can remember a series of board discussions at successive board meetings about how we were dealing with, for example, one transaction I can remember ... and I can talk about it because it is not going to be ... it was in the UK, a group of hotels in the UK, where there were a number of iterations of the plan to dispose of them, including a provision for restructuring some of the loans in order to get the thing into shape. So there was quite a lot of discussion at board.
I mean, it was one of the arguments - discussions - we had with the Department of Finance. In 2009 and 2010, for example, we had an enormous number of both board meetings and committee meetings, and it was represented to me that we were having too many meetings. And it was even said to me by people in the Central Bank. But once we explained to them what the subject matter of the meetings was, it was agreed that we were ... it was reasonable, if onerous. And I, as I have said to so many other people who have raised this with me, I think if the other members of the board had felt that I was convening board meetings too quickly, they would have been on my case pretty damn quick.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Right, thank you Mr. Dukes. Deputy Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat. Mr. Aynsley, I want to refer to page 14 of your statement that you've furnished to the committee. And this is where you address the accusations that ... and allegations that have been made against you as CEO-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----that you had close relationships and provided private commitments to certain named key customers. Can I ask you did you ever provide private commitments to any customer of IBRC-Anglo Irish Bank?
Mr. Mike Aynsley:
Never at any time. I've spoken on ... I was just about to finish off on that last question. I don't think ... there's not one name that hasn't, that's come up ... there's not one name that's come up in the last six months - so that's a bunch of names that's come up in the media that'll, that everyone has been discussing - where the overall strategy to do with those relationships and the method of approach was not taken up to the board in every single case. And I think to cap it off ... I think it's quite important to understand the process that we'd have with very large customers. You know, this is ... the financial shock and dislocation that happened was equally as distressing to good clients as it was to clients that couldn't weather the storm.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Mr. Mike Aynsley:
They needed time, particularly dealing with a bank that was going out of business, winding down to zero, to refinance their businesses. So, you know, we were dealing with an approved timeframe and, as Mr. Dukes has already explained, we were dealing with a timeframe to allow us to wind the book down to 2020. Then what we would do is we would work out the best way of handling that particular client and creating the space for them to refinance their business to another borrower.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. In relation to when you took over in terms of new management, you carried out a review in terms of the hospitality expenditure done by Anglo Irish Bank between 2006 and 2009 and, as part of that, golf seemed to come up very ... quite often. We see in a table that was published in Simon Carswell's book that there was €1.37 million spent, of which a large proportion of it was on the likes of golf balls, where €208,000 was spent, and umbrellas where there was in excess of, I think, €100,000 spent. There was golf days, €102,000, and so on.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes. It was reported that there was only 1,000 of the 125,000 left over and you were searching frantically for them.
Pearse Doherty (Donegal South West, Sinn Fein)
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On that point, there is also there, in terms of golf miscellaneous, which was €155,000 which was spent over them four years. Would that include corporate accounts that Anglo Irish Bank had with golf clubs?
Pearse Doherty (Donegal South West, Sinn Fein)
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Simon Carswell also says that Anglo Irish Bank had a corporate account with Druids Glen in County Wicklow. Are you aware of that?
Mr. Mike Aynsley:
Druids, yes, that had run out, interestingly, so I think it was one of these things where they gave, you know ... you could play so many times a year. They had all expired by, I think, the middle of 2009, end of 2009. So we had no value that we could take but what we did do with them is we had one of the PAs, who had a good relationship, talk to them from time to time and we would use those for staff. You know we couldn't do things for staff and we would ring them up and say "Look, you know, this has expired but do you mind if we send a couple of our operations people down?", for example.
Ciarán Lynch (Cork South Central, Labour)
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You need to wrap up Deputy.
Pearse Doherty (Donegal South West, Sinn Fein)
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And was the account with Druids Glen just in relation to green fees or did it go further than that?
Ciarán Lynch (Cork South Central, Labour)
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This is wonderful, now, but I need to stay within the terms of reference and I need to get this session concluded as well but I am sure this will be a good conversation at some time or other. Senator D'Arcy, please.
Michael D'Arcy (Fine Gael)
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Mr. Aynsley, The New York Times article "[Could] one bank bring down a country?" Are you ... The New York Timesarticle "[Could] one bank bring down a country?" Were you aware of that article?
Michael D'Arcy (Fine Gael)
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Do you think it is a fair headline? Do you think it is accurate?
Michael D'Arcy (Fine Gael)
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I asked you was it a fair headline?
Mr. Mike Aynsley:
Could one bank bring down a country? I think, as I said, I think it is a ... I think it is a headline and I think it's debatable. I think one bank in a country like this - it is a small country relatively speaking. It is a small financial sector and if you embed cultural behaviours you can generate contagion that can have a negative impact so ... not out of the question but I think it is drawing a long bow.
Michael D'Arcy (Fine Gael)
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Mr. Dukes, can I ask you in terms of the Nyberg report, it stated that the banking crisis was home grown, although there were international impacts. Do you agree with that assertion?
Mr. Alan Dukes:
Yes. I think there was a failure of regulation. There was, clearly, a failure of risk appetite, risk management on the part of the banks. There was excessive reliance by the banks on short-term interbank funding, which dried up. So, yes, all of those problems could have been dealt with domestically and if they had been properly dealt with domestically, we certainly ... we wouldn't have been immune from the effects of the international crisis, but the effects would have been a good deal less than they actually were.
Michael D'Arcy (Fine Gael)
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And, Mr. Aynsley, the same question to you.
Michael D'Arcy (Fine Gael)
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Mr. Nyberg said that the banking crisis in Ireland was homegrown.
Michael D'Arcy (Fine Gael)
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Do you agree with that?
Ciarán Lynch (Cork South Central, Labour)
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Right, I'm going to bring matters to a conclusion. When I do, I'll just be proposing a five-minute suspension where we return in private session as there's a number of matters that we need to get through before we conclude the committee's own business tonight before we adjourn the public sessions for the month of August, resuming in September. So with that said, I'd like to thank Mr. Dukes and Mr. Aynsley for your participation today and this evening and also for your co-operation in assisting us to get our programme completed in July. And I'd also like to thank you for your positive engagement with the inquiry here this evening as well. So with that now said, I formally excuse both witnesses with a five-minute suspension to return at 10.15 p.m. Okay? Thank you.